Profit E-Magazine Issue 43

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10 Weekly Roundup 16 The return of Husain Lawai’s legal troubles

20 22 PIA turnaround? Not happening, bro 32 Pakistan Textiles flourish despite the odds

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36 Facebook Makes Moves on Instagram’s Users 38 Media Wars

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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

PIA’S TURNAROUND EFFORT It is no secret that Pakistan’s state-owned enterprises are almost invariably badly run, but even by the Government of Pakistan’s atrocious standards, the national airline is a class of its own. Pakistan International Airlines has a storied history, one that middle class Pakistanis never tire of talking about. Nonetheless, there is no denying that PIA is now, and has been for decades, a basket case.

The new CEO of the company – Dr Musharaf Rasool Cyan – is, by most accounts, a highly accomplished professional and we have no doubts as to the sincerity of his desire to improve the operations and performance of PIA. It is also undeniable that he appears to be making at least initial strides in his plan for the company’s turnaround.

Ultimately, however, PIA’s problems stem from the fact that it is a bloated institution that is seen by its employees as the source of high salaries for very little work, and is seen by the Pakistani upper middle class as the source of continued cheap air transit to parts of the country that might not otherwise have viable air transportation options. Both of these are unsustainable without substantial reform, which is unlikely to be possible so long as the airline remains a (very expensive) ward of the state. Only when the approximately Rs40 billion annual taxpayer-funded subsidy to the airline is removed will the company’s management and employees seriously face the music and make the changes that are needed.

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At Profit, our inclination is to oppose direct government ownership of commercial enterprises, and PIA is no different. We understand that the government has a legitimate policy interest in maintaining air transit links to smaller cities in Pakistan, something that purely commercial enterprises would not do on their own. But there are far better ways of doing so than the government directly owning an airline, most simply by including mandates for coverage of small airports by any entity that wishes to get an airline license.

We wish Dr Cyan the best of luck in his attempts to turn around the national carrier.

We fear, however, given the country’s past experience with such efforts, this this attempt too shall be Quixotic.

Farooq Tirmizi Managing Editor

FROM THE MANAGING EDITOR

Senate Deputy Chairman Saleem Mandviwalla

QUOTE

“Climate change is a threat to our economy; there is a need to make efforts to mitigate its negative effect”

“Fourteen CPEC projects have generated 70,000 jobs for Pakistan’s youth” Leader of the Opposition in the Senate Sherry Rehman

$474m

have been earned by the national exchequer from sugar exports, touching a new high of 1.359 million tons during the first eleven months (July-May) of FY18. Last year, the exports of sugar had been recorded at 302,268 tons which fetched the country $158 million in the corresponding period of FY17.

In last eleven months of FY18, the average per ton price fell to $348 against $524 per ton average price fetched in the corresponding period of last financial year.

The commodity was exported to Myanmar, Nepal, Middle East and African countries. And a sugar miller revealed that 1.5 million tons of sugar had been exported during the outgoing FY18. He said Pakistan attained its highest ever production of the commodity of 7.5 million tons last season compared to the requirement of 5-6 million tons, leaving surplus stocks of 1.5m tons. He revealed the Pakistan Sugar Mills Association (PSMA) had not requested any subsidy and required go-ahead for the export of surplus sugar so farmers could be paid, which was refused by the government. During that period, sugar price in the global market was $550 per ton and as rates decreased to $350 per ton, the government then permitted sugar export with a subsidy of Rs20 per kg, with Rs10.7 per kg federal share and Rs9.30 per kg from Sindh government. Also, the country’s sugar production recorded a decline of 7 percent during July-April of FY18, touching 6.464 million tons against 6.969 million tons in the same period of FY17.

75th

was Pakistan’s rank with a score of 3.99 in the bi-annual Global Real Estate Transparency Index 2018 report. Pakistan was positioned in the low-ranking tier behind Iran and arch-rival India which registered an improvement by moving up one ranking to 35th with a score of 2.71. Pakistan jumped up 15 positions to 75th in 2018 compared to 88th in 2016 when South Asia’s first REIT had pushed the country into the “low transparency” category. Pakistan and Saudi Arabia have also seen rising transparency over the past two years, with regulatory reforms and increased data collection and publication by government bodies and international market participants contributing to their progress. The report’s key findings from the 2018 survey disclose transparency was continually advancing, with average transparency scores posting 2.4 percent improvement.

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Rs180b

loan was adjusted through consumer tariff by the previous PML-N led government. It decided to adjust the financing of Rs180 billion commercial loans in consumer tariff through a surcharge, a Senate committee was informed. The power division was asked to make the adjustment after the Rs180bn financing was built in the consumer tariff, said an additional secretary of finance ministry while giving a briefing to the Senate’s special committee on circular debt. He explained that an exercise carried out on the instruction of then Prime Minister Shahid Khaqan Abbasi put the circular debt payable at Rs514 billion till December 2017. According to him, a working paper presented to then PM Abbasi reported energy purchase payments at Rs298bn, capacity payments at Rs105bn and interest payments, late payment surcharges, other dues and taxes amounted to another Rs110bn or so. It was decided that energy payments be settled at the earliest and a summary was presented to the federal cabinet for approval. The cabinet approved mobilisation of about Rs250bn for which the finance ministry was asked to facilitate market financing of about Rs180bn while some other amounts were non-cash adjustments.

BRIEFING

“All projects of CPEC would be completed according to the agreed terms within stipulated timelines Caretaker Finance Minister Dr Shamshad Akhtar

QUOTE

15.42pc

increase was registered in domestic cement dispatches during FY18. According to data released by All Pakistan Cement Manufacturers’ Association (APCMA), during the fiscal year 2017-2018, domestic consumption stood at 41.147 million tonnes, an increase of 15.42 per cent from 35.651 million tonnes in 2016-17. However, exports grew by only 1.77 per cent from 4.664 million tonnes in 2016-17 to 4.746 million tonnes during 201718. In the month of June, the total cement dispatches were 2.979 million tonnes. Out of this, local dispatches in the North were 2.158 million tonnes against 1.897 million tonnes in June 2017 reflecting a growth of 13.77 per cent.

18.67pc

increase was registered in profit repatriation during first eleven months (July-April) of FY18.

Pakistan paid $2.237 billion in shape of profits and dividend during July-May FY18 against $1.885 billion in the corresponding period last year, as per central bank data. And foreign entities repatriated $464.4 million in May and net foreign direct investment (FDI) fell during July-May FY18 and outflows spiked up on FDI side, reported an English daily. FDI inflows were recorded at $2.475 billion during July-May FY18, down 1.3 percent from a year ago. According to SBP data, communicator sector witnessed largest profits and dividends outflow, touching $329.9 million against $143.5 million in the previous FY17. The oil and gas sector exploration sector repatriated $245.9 billion during July-May FY18 compared to $106.0 million last year. Considerable repatriations were recorded during July-May FY18 in chemicals of $134.1 million, food $210.3 million and automobile $122.9 million.

$1b

loan has been extended to Pakistan by China to shore its foreign exchange reserves. The latest loan highlights Islamabad’s growing dependence on Chinese loans to buffer its foreign currency reserves, which plunged to $9.66 billion last week from $16.4 billion in May 2017. The lending is the outcome of negotiations for loans worth $1-$2 billion that was first reported by in late May. With the latest loan, China’s lending to Pakistan in this fiscal year ending in June is set to breach $5 billion. In the first 10 months of the fiscal year China lent Pakistan $1.5 billion in bilateral loans, according to a finance ministry document seen by Reuters. During this period Pakistan also received $2.9 billion in commercial bank loans mostly from Chinese banks, ministry officials told.

$2b

was the figure of Pakistan’s rice exports during FY18. This was revealed by officials of Trade Development Authority of Pakistan (TDAP). The country’s rice exports first breached the $2 billion mark in FY15 and TDAF officials say Pakistan has been successful in achieving its export target of 4 million tons. An increase of 29.15 per cent in rice exports was registered during 11 months of the current fiscal year as about 3.842 million metric tons of rice worth $1.889 billion was reported to have been exported during this period. According to the data of the Pakistan Bureau of Statistics (PBS), the export of rice was recorded at 3.889 million metric tons valuing $1.463 billion during the same period last year.

During the period from July-May FY18, 461,472 metric tons of basmati rice worth $478.853 million was exported against the exports of 406,824 metric tons worth $385.746 in the same period last year.

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13.63pc

rise was posted in trucks and buses’ production, rising to 9,258 units in first 11 months of the current fiscal year compared to the production of 8,147 units of trucks and buses during July-May (2016-17). In May 2018, the trucks and buses production, however, posted a decrease of 8.09 percent as it went down to 874 units from 951 units in May 2017, the latest data of Pakistan Automotive Manufacturing Association (PAMA) said. Production of trucks posted an increase of 20.27 percent to 8,544 units in July-May (201718) compared to the production of 7,104 units during the same period of last year. During May 2018, the manufacturing of Trucks improved from 7,104 units in May 2017 to 808 units in the same month of current year.

“There will not be any major impact on the economy.

Islamabad hopes to get off the grey list within 15 months” Pakistan Ambassador to the United States Ali Jehangir Siddiqui

QUOTE

$2.55b

is Veon’s offer to buy GTH’s assets in Pakistan’s leading cellular company Jazz. According to a statement issued by GTH to the Egyptian Stock Exchange (EGX), VEON, Global Telecom’s main shareholder, has offered to acquire GTH’s whole issued share capital in International Wireless Communications Pakistan Limited, Telecom Management Group Limited, Telecom Venture Limited and Mobilink Microfinance Bank. The telecom company added that its board of directors is studying the offer and will proceed in accordance with the applicable laws and regulations. The takeover offer of the Amsterdam-based firm also includes assuming certain debt and payables of GTH, the statement read.

27-30pc

of GDP is Pakistan’s gross borrowing requirement amongst the highest in Moody’s sovereign list. The report shared an appreciation of the dollar had caused a sharp currency depreciation and a major decline in foreign exchange reserves for emerging and frontier market countries. The credit rating agency said Pakistan was facing increased external pressures arising from strong domestic and capital import heavy investments under China-Pakistan Economic Corridor (CPEC).

It projected the current account deficit for the financial year 2017-18 to be 4.2 percent of GDP and reserve coverage of external debt repayments was sufficient for now but projected it to erode. It added until a major improvement in capital inflows wasn’t recorded, there was a high risk of foreign exchange reserves of further diminishing. Moody’s report stated 30 percent of government debt was denominated in foreign currency and it highlighted this was fueled by persistent fiscal deficits and the government’s dependence on short-term debt, with an average maturity time-frame of 3.8 years.

5pc

drop on a year-on-year (YoY) basis has been recorded in Pakistan’s oil sales, touching 25 million tonnes primarily due to decline in Furnace Oil (FO) sales. This decline in sales comes after a 5-years lag when the industry posted a decline of 4 per cent in 2011-12. Furnace oil sales dropped 27 per cent to 7 million tonnes owing to the shrinking demand from power sector during the year.

To recall, the government imposed a ban on usage of expensive FO for power generation during winters due to the high cost of generation and availability of Regasified Liquefied Natural Gas (RLNG). Later on, the usage of FO resumed post commencement of summers when demand generally picks up however utilisation levels remained on the lower side. As per Oil Companies Advisory Council (OCAC), out of the total FO sales of 9.6 million tonnes in 2016-17, 85 per cent or 8.2 million tonnes of oil sales were made to the power sector.

Rs1.7t

were amassed in taxes at the import stage by the Federal Board of Revenue (FBR) for the just concluded FY18.

A revision in the tax structure in the last five years has resulted in a condition in which 58 percent of sales tax and 14 percent of income tax was collected at import stage during FY18. This was revealed by sources in the Federal Board of Revenue and although provisional figures for tax collection hadn’t been shared, although it has been told the receipts touched Rs3.841 trillion for FY18. The original tax collection target for FY18 by parliament was set at Rs4.013 trillion, which was revised downwards to Rs3.935 trillion a few months ago.

10.64pc

increase was recorded in football exports during first 11 months (July-May) FY18. According to the latest data by the Pakistan Bureau of Statistics (PBS), as many as 37.28 million numbers of manufactured footballs valuing $153.018 million were sent abroad during the period under review compared to the export of 32.568 million footballs worth $138.3 million during July-May (2016-17). The increase in export of footballs is witnessed amid the ongoing FIFA World Cup in Russia, where Pakistan’s manufactured footballs are being used.

Meanwhile, on year-on-year basis, the export of footballs also witnessed a surge of 29.4 per cent in May 2018 compared to that of May 2017.

BRIEFING

“The project will go a long way in developing telecom infrastructure in Pakistan’s northern areas as well as along CPEC” Caretaker Prime Minister Justice (retd) Nasirul Mulk

QUOTE

$370m

oil pipeline contract has been awarded to Frontier Oil Company (FOC) by the Oil and Gas Regulatory Authority (OGRA). According to ECC’s decision, the FCO setup by Frontier Works Organisation (FWO) for managing the oil pipeline project would have to reach out to the federal cabinet with its project plan for the go-ahead. But in violation of ECC’s decision, Ogra awarded the licence to Frontier Oil Pipeline for laying the pipeline on the very same route, the federal government had conferred to state-owned Inter-State Gas Systems (ISGS). In a public hearing conducted by Ogra, ISGS appeared as the aggrieved party.

Rs79.396m

were released by the government for the automation project of Central Directorate of National Savings (CDNS) under the Public-Sector Development Programme (PSDP) 2017-18. An amount of Rs 202.106 was earmarked for the automation project as per the allocations of PSDP (2017-18), official sources said. The total cost of the CDNS automation project has been estimated at Rs 879.8 billion which aims at bringing more branches of the National Savings under the automation system. Meanwhile, the Ministry of Planning, Development and Reform released Rs21886.308 million for various ongoing and new projects of Finance division under PSDP. The government in its Federal PSDP had earmarked Rs 27064.708 million for the Finance division projects, with foreign exchange component of Rs715.402 million, the sources added. According to details, the government released Rs 9555 million for Greater Karachi Water Supply Scheme which is being developed by provincial and the federal government on a cost-sharing basis.

21pc

increase in car sales was witnessed during the just concluded financial year 2017-18. In June 2018, auto sales were up 20 per cent YoY to 15,662 units whereas it was down 15 per cent month-on-month (MoM) due to the Eid holidays during June.

For the Fiscal Year ended 2018, Pakistan auto sales (including LCVs Vans and Jeeps) rose by 21 per cent year-on-year (YoY) with growth seen in all segments.

Honda witnessed the highest growth amongst its peers clocking in at 31 per cent YoY to a total of 51,494 units. The growth is mostly attributable to 302 per cent increase in BR‐Vs sold due to the low base of BR‐V units in 2016-17 as sales of the said SUV were initiated in 4QFY17. Disregarding BR‐V, the company still posted 16 per cent growth originating from City and Civic models. Pak Suzuki Motor Company (PSMC) posted strong growth of 26 per cent, selling 144,070 units cumulatively.

Rs577b

of foreign assets have been declared under the latest tax amnesty scheme unveiled in April this year. At least 55,225 declarations have been filed in which the declared value of foreign assets is around Rs577 billion and that of domestic assets is around Rs1,192 billion. The Ministry of Finance said the public response to the schemes has been positive. Declarants have paid around Rs97 billion out of which around Rs36 billion have been collected on foreign assets and Rs61 billion on domestic assets. In addition, $40 million has been repatriated. This response to the amnesty schemes has been unprecedented, the ministry claims.

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74pc

is the expected debt-to-GDp ratio by the end of current financial year 2018-19. The present public debt in terms of the total size of the economy was around 72 per cent, which was 14 per cent running over the fiscal responsibilities. The figure recorded by the end of PML-N government’s tenure was historic in the last 15 to 20 years exposing the country to many risks. The high ratio violates the Fiscal Responsibility and Debt Limitation Act (FRDLA) of 2005. Finance Minister Dr Shamshad Akhtar talking about the rise of debts said in Pakistan’s case the investment to GDP ratio has been increased due to development activities but without domestic resources ultimately depending on more borrowings.

BRIEFING

THE RETURN OF

HUSAIN LAWAI’S LEGAL TROUBLES

One of Pakistan’s leading bankers, Lawai’s career continues to be dogged by allegations of money laundering and illegal activities

I

By Farooq Tirmizi

n early 2008, the party in the Pakistani financial services sector had been going on for just under a decade but one man who could easily have been at the apex of it all was missing out on it. Husain Lawai was present – indeed one of the founding architects – of the transition of Pakistan’s banking system from a nationalized, sclerotic mess to the dynamic, privatized sector it was about to become.

Lawai, 73, graduated from the Institute of Business Administration in Karachi, then Pakistan’s only business school, with an MBA in 1967, and started working for MCB Bank, rising through the ranks in corporate banking. By the 1980s, he had moved on to leading Emirates NBD Bank in Pakistan and East Asia before moving on in 1987 to help set up Faysal Islamic Bank’s branches in Pakistan.

In November 1990, Nawaz Sharif took office as prime minister of Pakistan for the first time and almost immediately set about trying to reverse

16

the disastrous nationalization policies that former Prime Minister Zulfikar Ali Bhutto put in place in 1974.

Among the first banks to be put up for auction was MCB Bank, which was privatised in January 1991 after the Nishat Group, led by Mian Muhammad Mansha, was declared the winner of the auction. It was during the privatisation process that Mansha had gotten to know Lawai, who was the then CEO of Faysal Islamic Bank, which was serving as one of the institutions advising the Nishat Group on the transaction.

Once the bank was privatised and the Nishat Group assumed management control, Lawai was invited to become the CEO of MCB Bank.

It appeared to be a moment of triumph for Lawai, having gone from leading the tiny operations of a foreign bank to becoming the 46-yearold CEO of the fourth largest bank in the country. However, in retrospect, it may have been too early to celebrate.

While Pakistan’s banking sector was beginning to be privatised, it had not yet completely shaken off the

‘IT APPEARED TO BE A MOMENT OF TRIUMPH FOR LAWAI, HAVING GONE FROM LEADING THE TINY OPERATIONS OF A FOREIGN BANK TO BECOMING THE 46-YEAR-OLD CEO OF THE FOURTH LARGEST BANK IN THE COUNTRY. HOWEVER, IN RETROSPECT, IT MAY HAVE BEEN TOO EARLY TO CELEBRATE’ shackles of political interference. And by most accounts, Lawai, having spent most of his career in nationalised banks, was used to cultivating relationships with politicians. Among the politicians with whom Lawai devel-

Husain Lawai… no comebacks this time round?

oped a close relationship was Asif Ali Zardari. That resulted in Lawai’s first fall from grace.

In October 1996, shortly after the second Benazir Bhutto administration was removed from office by then-President Farooq Ahmed Khan Leghari, the government began investigating corruption allegations against

several members of that administration, including Zardari. Among other accusations was the allegation that Zardari had laundered and illegally remitted billions of rupees outside Pakistan with the help of businessman Abdur Razzaq Yakoob (known more famously by his initials, ARY).

Lawai got caught up in that in-

vestigation, and it was alleged by the governments of both Pakistan and the United Arab Emirates, that he had willingly allowed his bank to be used as a vehicle for laundering money from Pakistan to the UAE. The money laundering charges against Lawai were never proven, and in 2002, a court in the UAE exonerated him. But when they first surfaced in 1996, they were serious enough for him to have to leave the country, first to the UAE and then on to London.

It probably does not help that, after the allegations surfaced, he was fired from his position as CEO of MCB Bank and the man who was widely perceived to be his political patron, Zardari, had been thrown in jail on charges of corruption.

Lawai spent 12 long years in exile, years that could have been the peak of his career. At the age of 46, he had become the CEO of the fourth-largest bank in the country. By the time he was 51, he was out of a job and facing money laundering charges. It was a stunning fall from grace.

He was on the outside, looking in, and hungry to prove his mettle.

Finally, by early 2008, matters had turned in his favour. Having already been acquitted in the UAE in 2002, he was finally acquitted of the money laundering charges against him in Pakistan in 2008.

And he seems to have been observing Pakistan’s banking system closely enough to realise the opportunity that presented itself that year: the smallest banks were struggling to survive, not having enough scale to be interesting enough to the best sources of corporate credit and hence collapsing under the dual weight of high operating costs and bad loans.

Lawai’s time in Dubai had not been spent idly, and he had provided his consulting services to several of the Middle East’s wealthy families. In late 2008, he persuaded one of them to back him in his idea: merge the smallest three banks of the Pakistani banking system, and shore up their capital, which would give them the scale and the stability to compete with at least the mid-tier banks.

His first target was Arif Habib, for which he bid in October 2008 and completed the transaction in July 2009. He then used this vehicle to bid for Mybank (October 2009) and Atlas Bank (November 2009). The last of

BANKING

the three transactions closed on June 30, 2011, by which time the bank had already been renamed Summit Bank.

A product of pure ego, magnified three times over

S

ummit Bank is a sausage of a bank, strewn together in a slapdash series of three mergers that took place between 2009 and 2011 when Suroor Investments, began buying out the smallest, crappiest publicly listed banks in Pakistan. Suroor is a Mauritius-registered special purpose vehicle owned by Nasser Abdulla Hussain Lootah, a member of one of the oldest and wealthiest families in Dubai.

It is still the majority (51%) shareholder in Summit Bank and it was Lootah’s money that Lawai used to make his comeback in the Pakistani banking market.

I

Dawood/Atlas Bank

n 2004, when the Bank of Ceylon decided to close down its tiny operations in Pakistan, Hussain Dawood bought them and renamed them Dawood Bank. However, while he bought the bank, it appears that he never had a clear strategy for running it. The bank, if anything, was a distraction and in 2006, he sold it off to somebody who clearly valued the prestige of owning a bank far more than he did: Yusuf Shirazi’s Atlas Group.

Strictly speaking, the Shirazis should not have felt the need to own a bank. They were and are one of the top five richest families in Lahore, probably in the top three, and easily part of the social elite of Pakistan. The problem for them, however, appears to have been the fact that the other two of the top three did own banks: Mian Muhammad Mansha owns MCB Bank now, while the Sheikh family possesses Allied Bank. In

‘WHILE PAKISTAN’S BANKING SECTOR WAS BEGINNING TO BE PRIVATISED, IT HAD NOT YET COMPLETELY SHAKEN OFF THE SHACKLES OF POLITICAL INTERFERENCE. AND BY MOST ACCOUNTS, LAWAI, HAVING SPENT MOST OF HIS CAREER IN NATIONALISED BANKS, WAS USED TO CULTIVATING RELATIONSHIPS WITH POLITICIANS. AMONG THE POLITICIANS WITH WHOM LAWAI DEVELOPED A CLOSE RELATIONSHIP WAS ASIF ALI ZARDARI. THAT RESULTED IN LAWAI’S FIRST FALL FROM GRACE’ 18

addition to owning Atlas Honda (motorcycle manufacturing) and Honda Atlas Cars, the Shirazis owned other financial institutions, such as an insurance company (bought in 1980), an investment bank (created in 1990), and a leasing company (created in 1989).

Maybe that is what made them think: how hard could owning a bank be?

It turns out that it could be extremely hard, especially with the family remaining focused largely on their industrial interests. For one thing, they got the timing wrong. They bought Dawood Bank in February 2006, which was just in time for their two-year expansion drive to land right in the middle of the worst financial crisis in Pakistan’s history. For another, while they did not seem to be completely terrible at lending (non-performing loans were around 10% of the lending book when they sold the bank), they seemed to be in an undue rush to get deposits and were willing to give the house away to get them, meaning their net interest margin was essentially zero.

Needless to say, it did not end well.

By the third quarter of 2008, Atlas was looking for a buyer for their bank, with the first candidate being KASB Bank in October 2008, though that deal never went through, largely over price disagreements (although that is probably code for ‘KASB had less money than they were willing to let on’.) In April 2009, the Shirazis tried to sell the bank to Saudi-Pak Bank (now Silkbank), but even that transaction did not go through. Finally, in November

2009, they sold Atlas Bank to Suroor Investments for Rs4.50 per share, or 0.84x its book value at the time.

Arif Habib Bank

M

eanwhile, the bank that actually became the legal predecessor company to Summit Bank started its life as Arif Habib

Bank.

Arif Habib, not related to the Habib family, was born in 1953 as the youngest of nine children. Arif’s father was a tea merchant based in Bantva, a small town in the Indian state of Gujarat. While the rest of the family migrated to Pakistan in 1948, Arif’s father stayed behind to run the family business and sent money to take care of Arif and his siblings. In the early years, it was not much money, and as a result, Arif did not get much of an education, only ever passing 10th grade by the time he was 17. That year, 1970, was when his father sent enough money to his elder brother to buy a seat on the Karachi Stock Exchange (the value of

which had plummeted as Pakistan was ravaged by the civil war that ultimately led to the creation of Bangladesh).

Young Arif was recruited by his brother to start working there.

Arif excelled at the brokerage business, currying favour with the old men who dominated the exchange at the time. While nearly everyone there was literate, not all of them were comfortable reading, so Arif’s ability to read financial statements for his elders came in handy.

Throughout the 1990s, Arif Habib continued to focus on his brokerage business and gain influence at the exchange, though he was never really a truly wealthy individual back then.

He got his big break in May 1998, when India conducted five nuclear tests, prompting Pakistan to follow suit. The threat of Western sanctions caused the Pakistani equity market to crash.

Between May 8, 1998 – the last trading day before India conducted its tests – and July 14, 1998, the KSE-100 Index fell by 50.7%, losing more than half of its value in just over two months.

‘LAWAI’S TIME IN DUBAI HAD NOT BEEN SPENT IDLY, AND HE HAD PROVIDED HIS CONSULTING SERVICES TO SEVERAL OF THE MIDDLE EAST’S WEALTHY FAMILIES. IN LATE 2008, HE PERSUADED ONE OF THEM TO BACK HIM IN HIS IDEA: MERGE THE SMALLEST THREE BANKS OF THE PAKISTANI BANKING SYSTEM, AND SHORE UP THEIR CAPITAL, WHICH WOULD GIVE THEM THE SCALE AND THE STABILITY TO COMPETE WITH AT LEAST THE MID-TIER BANKS’

To add to the financial panic, the government had frozen all foreign currency accounts, which at the time accounted for nearly half of all bank deposits in Pakistan. Nobody was in the mood to buy.

Except Arif Habib.

He guessed, correctly, that once the political panic wore off, prices would rebound and anyone who had bought at the bottom would make a killing.

While everybody else was hoarding cash, Arif was buying everything he could get his hands on. Everyone, including his old cabal of friends, called him a madman. But ultimately, he was proven right.

Within a year, the market was up 47%, and within two years, it had doubled, regaining its pre-nuclear test levels. Arif’s nerve paid off. Within a few years, he had gone from being just one of the many brokers on the exchange to being one of its wealthiest members.

Flush with the new-found wealth, Arif began expanding his financial services empire. In 2000, he set up the country’s second private sector asset management company (JS set up the first one in 1996). And in 2005, confident with his spate of recent successes, and cozy in his relationship with then-Prime Minister Shaukat Aziz, Arif bought himself a bank. Rupali Bank of Bangladesh (which itself was created with the seized operations of pre-1971 Pakistani banks) was shutting down its operations in Pakistan and Arif decided to buy them up, creating Arif Habib Bank.

That year was probably Arif’s best.

His financial empire was expanding, he

BANKING

had begun construction on a massive new headquarters building on Queens Road in Karachi’s financial district, and was on the verge of building himself an industrial empire as well, by buying out the state-owned Pakistan Steel Mills.

In hindsight, however, it was also the beginning of the end of his charmed run. In 2006, the Supreme Court of Pakistan ruled that his acquisition of Pakistan Steel was illegal. And his bank was not off to a great start either. Brilliant though he was in the equity markets, Arif knew nothing of fixed income and did not appear to have hired people who did know. The result was a predictable calamity, with more than a quarter of loans ever given out

by Arif Habib Bank eventually written off as bad debts.

Unlike the Shirazis, who seem to have dispassionately disposed of their bank, Arif took the failure of his ability to run a bank personally. In late 2008, he suffered a heart attack. The cause was never disclosed, but the stress from the losses of 2008 cannot possibly have been easy.

In October 2008, while the Shirazis were negotiating with KASB Group, Arif reached an agreement with Suroor Investments to sell his stake in the bank named after him. The transaction closed at Rs9.00 per share, or 0.77x the bank’s book value at the time.

Mybank

T

he third predecessor institution to Summit Bank was Mybank, which started its life in 1992 as Bolan Bank, created as the state-owned bank established by the government of Balochistan. You can guess how this baby never really had a chance.

But Iqbal Ali mohammad wanted to give it a try. Iqbal was the CEO and one of the major shareholders of Gul Ahmed Textiles, arguably one of the best known brands in Pakistani clothing. By 2005, Gul Ahmed was one of the top five textile companies in Paki-

‘WHEN YOU HAVE A SAUSAGE ON YOUR HANDS, THE BEST YOU CAN DO IS HOPE FOR A REALLY GOOD HOT DOG. LAWAI KNEW HE WAS NOT INHERITING THE BEST BANK IN THE COUNTRY, AND HE KNEW HE HAD TO CRAFT A STRATEGY FOR IMPROVING ITS OPERATIONS BECAUSE SUMMIT BANK WAS LOSING MONEY HAND OVER FIST’ stan and one of its leading exporters, in addition to becoming a household name in Pakistan’s domestic women’s clothing market. Naturally, somebody in the family had the idea to buy a bank.

Iqbal took charge of this mission, buying out Bolan Bank in 2005 and renaming it Mybank. It is not immediately clear what exactly Iqbal or his brother had in mind when they bought the bank, because they do not seem to have done much with it.

By the time the bank was sold to Suroor Investments, in what can now be described as a mercy killing, more than 38% of all loans it had ever underwritten had to be classified as

bad loans, unrecoverable and gone for good. Miraculously, the family managed to hold out until October 2009 before selling their shares in the bank for Rs8.00 per share, or 0.73x its book value at the time.

Mybank was the last acquisition completed by Suroor Investments before they created Summit Bank, the theory being that all of these banks were really crappy separately, but maybe together somehow they would be awesome. It was not an unreasonable theory, and the man who came up with it certainly had reason to hope it was

‘SUMMIT BANK IS A SAUSAGE OF A BANK, STREWN TOGETHER IN A SLAPDASH SERIES OF THREE MERGERS THAT TOOK PLACE BETWEEN 2009 AND 2011 WHEN SUROOR INVESTMENTS, BEGAN BUYING OUT THE SMALLEST, CRAPPIEST PUBLICLY LISTED BANKS IN PAKISTAN’ 20

true.

Inheriting the sausage

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hen you have a sausage on your hands, the best you can do is hope for a really good hot dog. Lawai knew he was not inheriting the best bank in the country, and he knew he had to craft a strategy for improving its operations because Summit Bank was losing money hand over fist. The bank he inherited was hemorrhaging money to the tune to Rs3 billion ($35.9 million) a year during his first year as a CEO, on a balance sheet of Rs72 billion ($853

million).

For the bank succeed in the segment of the market he wanted to, he first had to physically move the branches to where his prospective customers were. Of the 160 branches he inherited, in his first two years, Lawai had 47 of them moved. This, of course, had the effect of increasing his cost base for those years. In 2010, the bank was spending Rs40 million per branch, a number that came down to Rs26 million per branch by 2013.

In addition to the inherited branches, in the first two years he also added another 26 branches, taking the number up to 186. However, he appears to have realized soon enough that trying to grow the bank too fast, without having fully stabilized it, was probably not a good idea and since then, the bank has only added seven more branches.

On the liability side, Lawai struggled with a critical problem: he effectively had hardly any retail deposits, only high-cost corporate ones (in 2009,

Arif Habib… the canny Stock Exchange operator made his big killing post Pakistan’s tit-for-tat 1998 nuclear blasts. Called ‘a madman’ by his old cabal of friends, he went on a buying binge while everybody else was hoarding cash

Abdur Razzaq Yaqoob… alleged to have laundered and illegally remitted billions of rupees outside Pakistan for Asif Zardari

Nasser Abdulla Hussain Lootah… a member of one of the oldest and wealthiest families in Dubai, it was Lootah’s money that Lawai used to make his comeback in the Pakistani banking market

the bank’s percentage of retail deposits was actually close to 0%). This resulted in a cost of deposits of 14.5%, the highest in the industry by a long shot.

So another order of business was to unwind those costly long-term deposits and get cheaper ones in their place.

The branch relocation helped with at least some new deposits, but Lawai had to do more. And so, in order to attract retail deposits, Summit Bank went nuts, formulating a three-pronged strategy: staying open later in the evenings than their competitors and on weekends, introducing co-branded and prepaid debit cards (then still unusual in Pakistan), and focusing on the remittances business.

In areas of Karachi and Lahore with high net-worth depositors, the bank kept branches open till 8 pm. At the fanciest mall in Karachi, the branch stayed open till 11 pm, basically until the mall itself closed, to attract the accounts of the shops located there.

And at the Fish Harbour in Karachi, the branch stays open 24/7. And 77 of its

193 branches stay open on Saturdays and two on Sundays.

The bank also introduced pre-paid debit card and co-branded some of its debit cards with some of the bestknown consumer brands in Pakistan.

And in order to ensure that it gets truly retail deposits, Summit Bank focuses heavily on the remittances business. Despite being only the 17th largest bank in Pakistan by assets, it is the seventh largest in terms of handling inward-bound remittances to Pakistan.

While the fee income on remittances is nice to have, the real advantage of the remittance business is having the deposit accounts of the families of expatriate Pakistanis, who tend to be slightly better off than similar families in any given geographic region.

It was a valiant effort, but clearly not enough to build a viable bank.

Lawai was able to eke out two years of profitability for Summit Bank – in 2014 and 2015 – which was enough for him to declare victory and retire to the life of an emeritus presence in Pakistani fi-

nance. Summit Bank continues to struggle with massive losses in both 2016 and 2017 – Rs2.2 billion and Rs1.1 billion respectively, and the year 2018 is not off to a much better start either, with a loss of Rs328 million in the first quarter.

‘LAWAI WAS ACQUITTED ON THOSE CHARGES IN THE PAST, AND IT IS POSSIBLE HE IS STILL INNOCENT OF THESE ALLEGATIONS NOW. BUT ONCE AGAIN, PAKISTAN’S FINANCIAL SERVICES SECTOR WATCHES AS THE ONCE-HIGH-FLYING CEO FACES YET ANOTHER FALL FROM GRACE’

The second fall

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t appears, however, that history repeats itself, and the past continues to haunt Husain Lawai. Having gone into a semi-retirement, Lawai was taking on board positions across corporate Pakistan, including the prestigious appointment of becoming chairman of the Pakistan Stock Exchange.

Once again, however, Asif Ali Zardari is in political trouble, and once again, Husain Lawai appears to be part of the collateral damage. Earlier this month, allegations of money laundering by leading political figures surfaced in an explosive investigative report in The News. Soon afterwards, Lawai confirmed to that newspaper that he had been prevented from leaving the country and was under investigation – once again – for assisting money laundering.

Lawai was acquitted on those charges in the past, and it is possible he is still innocent of these allegations now. But once again, Pakistan’s financial services sector watches as the once-high-flying CEO faces yet another fall from grace.

And this time, there may be no more room for a comeback.

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By Farooq Tirmizi, Babar Nizami, Yousaf Nizami, and Faran Bukhari

t is said that the key ingredient to absolutely excruciating, mind-bending torture is… hope. We at Profit do not believe in keeping our readers in any such agony. We do not want you to read a long piece about the attempts at a turnaround at PIA in the hopes that the national carrier might actually be about to get better. No, we want to bury those hopes right there in the headline.

Abandon all hope, ye who read further.

Got it? No hope left? Good. Because now you can read about the comically absurd reasons as to why Pakistan International Airlines – once a reasonably functioning airline – is so depressingly and irredeemably down in the dumps, and laugh along at the ridiculousness of it all.

You will read about the “let’s risk it and see what happens” policy when it comes to aircraft maintenance.

You will learn about the “performance appraisals” that somehow magically result in 95% of all PIA staff being rated “outstanding”. We will tell you about how, in a staff of 13,000 people that is meant to manage just 32 functioning aircraft, there are somehow still not enough qualified people to do the jobs needed. And you will find out about the law suits. So. Many. Lawsuits.

But first, some context is in order.

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The new man on the job

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rofit sat down with the new CEO of PIA, Dr Musharraf Rasool Cyan, for an extensive and wide-ranging interview. On the surface, at least, Dr Cyan seems like exactly the kind of person one would want to see at the helm of the national carrier: well-credentialed, yet with a certain air of humility about both the scope of the challenge he faces as well as the behaviour that will be required of him to set an example for the staff.

Dr Cyan holds a PhD in Economics from Georgia State University. He stood first in the nationwide competitive exam for civil service in 1990 and won gold medals for his performance in the Civil Service Academy. His doctoral studies in Economics focused on pricing, consumer behavior, taxation, investment in public assets, quantitative methods and analytical tools for efficiency and effectiveness.

In other words, he is both a highly trained civil servant as well as an academically qualified economist. One could not manufacture more perfect credentials in a laboratory. A pity that talent and credentials will be wasted on something so frustratingly ungovernable as PIA. In our interview, it became immediately obvious that Dr Cyan’s educational and professional credentials lead him to be able to diagnose with remarkable precision exactly what is wrong with PIA, what could theoretically fix the airline’s problems, as well as the practical challenges that will mean that the airline remains unfixed for the foreseeable future, though of course, the CEO did not sound quite so morose as we were after listening to him.

Cyan started the conversation by laying out his vision and agenda for PIA. It was quite detailed, and impressive, with its various phases named for the different speed of an aircraft as it is about to take-off (V1, the first phase,

Dr Musharraf Rasool Cyan, CEO, PIA which is named after the velocity of the aircraft right before it leaves the ground, and VR, the second phase, right when the aircraft’s body turns skyward). It all sounded wonderful and we would love to tell you all about it the way he laid it out to us. But then you would start to get hope, just like we did. And that, dear reader, we cannot allow to happen.

As Morgan Freeman’s character in Shawshank Redemption says: “Hope is a dangerous thing. Hope can drive a man insane.”

So instead, we will describe to you the challenges facing PIA, as Cyan laid them out. We will then describe to you what he thinks should be done about them, and then what he describes as the obstacles in his way, obstacles that we believe – and he almost admitted – are all but insurmountable for PIA in its current form.

‘IN OTHER WORDS, HE IS BOTH A HIGHLY TRAINED CIVIL SERVANT AS WELL AS AN ACADEMICALLY QUALIFIED ECONOMIST. ONE COULD (A) Great (Many) to Sue You NOT MANUFACTURE MORE PERFECT CREDENTIALS People n the surface, PIA looks like any IN A LABORATORY. A PITY THAT TALENT AND other corporation. It publishes financial statements (a year late, CREDENTIALS WILL BE WASTED ON SOMETHING but still), it holds shareholder SO FRUSTRATINGLY UNGOVERNABLE AS PIA’ meetings, has a board of directors,

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and is even publicly listed on the stock exchange. However, its core problem is that it does not, in reality, function like a company. Functionally, PIA is now a government department and its employees have all of the protections of a civil service job, and with precisely the same level of accountability that the rest of the civil service faces with respect to the public: asymptotically approaching zero.

As a result, PIA simultaneously has both way too many people (the kind who take home a full salary and demand benefits, but are not adding much economic value) and not enough (the kind of people who can actually do a competent job).

When you give people a salary that meets their financial needs, but not enough work to keep them occupied during business hours, you may have a problem on your hands.

“Human resources is the problem at PIA,” said Cyan. “For 32 aircraft, I have 13,000 people. Half of my day is

spent dealing with them. The problem is severe. When I do need people, they do not possess the skills. When I go to the market to hire for those skills, I face legal challenges. Those are the two main problems. The third is discipline.

For the kind of behaviour our staff routinely get away with, you would lose your job at Emirates the same day.”

That litigiousness is at the core of the problem. PIA staff may not have enough work or the skills to do the jobs that need to be done, but somehow, an alarmingly large number of them have access to lawyers, and a willingness to sue the government for just about anything that any management at the company would want to change.

So litigious is the culture at PIA that the airline was prevented by an order from no less than the Supreme Court of Pakistan to stop its rebranding exercise where they were repainting the aircraft with a new logo.

Yes, you read that correctly. For PIA, even just wanting to repaint their

‘WE WILL DESCRIBE TO YOU THE CHALLENGES FACING PIA, AS CYAN LAID THEM OUT. WE WILL THEN DESCRIBE TO YOU WHAT HE THINKS SHOULD BE DONE ABOUT THEM, AND THEN WHAT HE DESCRIBES AS THE OBSTACLES IN HIS WAY, OBSTACLES THAT WE BELIEVE – AND HE ALMOST ADMITTED – ARE ALL BUT INSURMOUNTABLE FOR PIA IN ITS CURRENT FORM’

own aircraft is a matter that will be litigated in the highest court in the country. And they are competing in the domestic market against companies that can make decisions almost instantaneously and implement them at any pace they desire, and internationally, PIA’s biggest competitors is one of the largest airlines in the world (Emirates).

Still have that last shred of hope?

It had better be gone by now because this article only goes downhill from here.

Customer (dis)satisfaction and (lack of) employee appraisals

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ne of the most telling stories about PIA’s culture was the one Cyan relayed to us about how the company measures customer satisfaction.

“This happened during the first time I was leading a meeting with the various department heads,” said Cyan.

“They kept saying that their performance on customer satisfaction is very good. I asked them how they measure it. They said that customer complaints have gone down. To that, I asked: have you considered the possibility that people are giving up on us and not even bothering to complain?”

Cyan has since implemented a more scientific methodology for collecting customer satisfaction data.

Passengers are now selected at random on 10 flights every single day and

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handed a simple card on it asking them to rate their experience with PIA across a variety of metrics. The responses consist of emojis such as a smiling face, a sad face, or an angry face, and thus take very little time to fill out, increasing their response rate.

And then there is the way the organisation measures the performance of its own employees. For an airline that is bleeding money by the tens of billions on an annual basis, the staff has a very high opinion of themselves and their colleagues.

“During my first three days, I wanted to find out how the company records performance,” said Cyan.

“What I found was that it was worse than nonexistent. Over 95% of the people in PIA are ranked outstanding and most have had that ranking for the past 10 consecutive years. If none of the airline’s departments are able to perform even basic functions, how is everyone ‘outstanding’?”

Cyan tried to implement a change

‘ON THE FINANCIAL FRONT, LET US BE COMPLETELY BLUNT: PIA IS BANKRUPT. AND NO, WE DO NOT MEAN THAT AS A METAPHOR FOR “NOT DOING WELL THESE DAYS” OR “HAS A LOT OF LOSSES”. NO, WE MEAN THAT THIS AIRLINE HAS ABSOLUTELY NO ABILITY ON ITS OWN TO REMAIN A GOING CONCERN…’ in how performance is measured by introducing what would have been a package of both rewards and punishments for employees. Alas, he ran into that wall of litigation again.

“The moment I start implementing something, the staff will sue and get stay orders from courts,” he said. “We have a total of 1,100 cases pending in the courts.”

So instead of trying to include rewards and punishments, Cyan is trying to design a system that rewards better performance, but does not create disincentives for bad performance. It is based on a theory of organisational

‘...ITS CORE PROBLEM IS THAT IT DOES NOT, IN REALITY, FUNCTION LIKE A COMPANY. FUNCTIONALLY, PIA IS NOW A GOVERNMENT DEPARTMENT AND ITS EMPLOYEES HAVE ALL OF THE PROTECTIONS OF A CIVIL SERVICE JOB, AND WITH PRECISELY THE SAME LEVEL OF ACCOUNTABILITY THAT THE REST OF THE CIVIL SERVICE FACES WITH RESPECT TO THE PUBLIC: ASYMPTOTICALLY APPROACHING ZERO’ 26

behaviour that has been implemented at several companies around the world, most famously at Google, though it remains to be seen what, if any, improvements it brings to employee behaviour.

Dangerous practices in engineering

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peaking of the basics not being done right, PIA staff apparently seem to treat aircraft maintenance like it is something optional. The airline had, until recently, made it a habit to use something called “limited authorisation”, where an aircraft is inspected and found to not comply fully with international flight safety regulations, and allowed to fly anyway.

Cyan has been trying to crack down on the use of limited authorisations by investing heavily in engine overhauls and aircraft repairs.

“In 2016, there were 128 limited authorisations, and that is now down to zero,” he said.

It is easy to be cavalier about aircraft maintenance, but this is something that can actually cost lives. The

‘HUMAN RESOURCES IS THE PROBLEM AT PIA. FOR 32 AIRCRAFT, I HAVE 13,000 PEOPLE. HALF OF MY DAY IS SPENT DEALING WITH THEM. THE PROBLEM IS SEVERE. WHEN I DO NEED PEOPLE, THEY DO NOT POSSESS THE SKILLS. WHEN I GO TO THE MARKET TO HIRE FOR THOSE SKILLS, I FACE LEGAL CHALLENGES. THOSE ARE THE TWO MAIN PROBLEMS. THE THIRD IS DISCIPLINE. FOR THE KIND OF BEHAVIOUR OUR STAFF ROUTINELY GET AWAY WITH, YOU WOULD LOSE YOUR JOB AT EMIRATES THE SAME DAY’ Dr Musharraf Rasool Cyan, CEO, PIA most famous recent example was PIA Flight 661, which was scheduled to fly from Chitral to Islamabad on December 7, 2016, but crashed near Havelian in Abbottabad. All 47 people on board, including singer-turned-preacher Junaid Jamshed, were killed.

It is a testament to the institutional sclerosis and callousness that – rather than serving as a wake-up call for having lost that many passengers and crew members – PIA still did not begin investing in aircraft maintenance until the CEO was changed the next year.

Instead, in December 2016, just a

few days after the Havelian crash, PIA staff sacrificed a goat as sadqa before an Islamabad to Multan flight for good luck and a safe flight.

Think about that. Somebody actually had enough awareness to realise that the aircraft was the same model that crashed in Havelian and might be unsafe, went out to a livestock market and bought a goat, and actually took the time to slaughter a goat on the tarmac, but somehow magically did not think: “Hey, maybe we should run a safety check on this aircraft and stop flying it if it is not safe.”

‘AND THEN THERE IS THE WAY THE ORGANISATION MEASURES THE PERFORMANCE OF ITS OWN EMPLOYEES. FOR AN AIRLINE THAT IS BLEEDING MONEY BY THE TENS OF BILLIONS ON AN ANNUAL BASIS, THE STAFF HAS A VERY HIGH OPINION OF THEMSELVES AND THEIR COLLEAGUES’

Ladies and gentlemen, we give you modern Pakistani “mind” in a nutshell: aware of the problem, absolutely clueless about how to fix it.

Do we even need to ask about your hope levels at this point?

The financial mess

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n the financial front, let us be completely blunt: PIA is bankrupt. And no, we do not mean that as a metaphor for “not doing well these days” or “has a lot of losses”. No, we mean that this airline has absolutely no ability on its own to remain a going concern, and is only able to continue limping along because we the taxpayers are pumping in tens of billions of rupees worth of bailouts every year into the organisation, a whopping Rs318 billion over the past decade.

How do we know that PIA is not a viable business? Because it has not made a profit since 2004, and since

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2009, its auditors have included a line in their audit reports every year that states that PIA is not a viable business and would collapse completely without annual government bailouts.

This is the part where most Pakistani populists get up in arms about how the organisation has “so many valuable assets” and therefore, “how can it be bankrupt”?

Because, dear geniuses, a company’s balance sheet includes both assets and liabilities. Looking at PIA’s assets without looking at its liabilities is just plain wrong.

Let us put it in plain terms. Take the PIA’s single most valuable asset: the Roosevelt Hotel in Midtown Manhattan.

At the peak of the market, that hotel might have been worth about $1 billion, but under current conditions is probably worth closer to $700 million. Even if PIA were to get a $1 billion price for the hotel, that amount would cover less than one-third of PIA’s total debts.

This organisation is in deep, deep financial trouble, and its CEO knows it.

“People don’t realize that I’m actually paying over Rs4 billion every month to debt servicing. And that’s not reducing, that’s increasing,” said Cyan.

What happens next?

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hrewd readers will have noticed that, for all the major issues discussed, we laid out the CEO’s plan to tackle them for all but two problems: the inability to fire people or hold them accountable, and the massive debt problem. It just so happens that those are problems number one and two respectively for PIA in terms of their magnitude and impact on the organisation.

Cyan admits that these are problems he does not have the ability to

ON THE WINGS OF SADQA: Somebody actually had enough awareness to realise that the aircraft was the same model that crashed in Havelian and might be unsafe, went out to a livestock market and bought a goat, and actually took the time to slaughter a goat on the tarmac, but somehow magically did not think: “Hey, maybe we should run a safety check on this aircraft and stop flying it if it is not safe.” solve and that they are – quite candidly – beyond his pay grade. The government of Pakistan needs to decide

‘TAKE THE PIA’S SINGLE MOST VALUABLE ASSET: THE ROOSEVELT HOTEL IN MIDTOWN MANHATTAN. AT THE PEAK OF THE MARKET, THAT HOTEL MIGHT HAVE BEEN WORTH ABOUT $1 BILLION, BUT UNDER CURRENT CONDITIONS IS PROBABLY WORTH CLOSER TO $700 MILLION. EVEN IF PIA WERE TO GET A $1 BILLION PRICE FOR THE HOTEL, THAT AMOUNT WOULD COVER LESS THAN ONE-THIRD OF PIA’S TOTAL DEBTS. THIS ORGANISATION IS IN DEEP, DEEP FINANCIAL TROUBLE, AND ITS CEO KNOWS IT’ 28

whether it is willing to face the painful task of restructuring the failing asset that is PIA, and take on its powerful unions and employee lobby, or if it is willing to continue pumping in tens of billions of rupees every year to avoid the problem.

Because short of that, you can bring in all of the competent managers you want (yes, Asad Umar, we are talking directly to you right now), it will only amount to rearranging the deck chairs on the RMS Titanic.

We asked Cyan bluntly, if PIA is a lost cause without those structural reforms.

“Still hoping maybe not,” he said.

And therein lies his problem. He still has hope, the poor soul.

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Rendered uncompetitive owing to high utility prices, the Pakistan textile exports still make an appreciable surge

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By Arshad Hussain

lmost every industrialist and trader sounded dejected at the policies of the Pakistan Muslim League-Nawaz (PML-N) and Pakistan Peoples’ Party (PPP) governments over the last 10 years. To them, the anti-business and anti-trade policies did not allow them to run their industries and businesses to garner optimum yield, lead to lesser growth and greater inflation, increasing pressure on valuations and cost of doing business in Pakistan.

The main reasons behind this dejection were

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the non-availability of utilities and higher cost of electricity and gas. Without cheap utilities, the industry pundits claim, the factories and businesses cannot be run efficiently.

During the last 10 years of democracy, the governments of PML-N, PPP, and Pakistan Tehreek e Insaaf (PTI) failed to overcome the power crises in the country, blaming each other for it. To them, the country’s export could not be enhanced without electricity, gas, and water.

The wrong policies of the previous governments hit the exports while the imports increased at a breakneck pace, with the trade gap surging to

over $27.9 billion in the last eleven months.

According to the economic experts, the Pakistan exports would rise to $25 billion in 2017-18, up by 13-14 percent compared to the last fiscal year, though imports touching $56 billion or above during the same period, remain a major issue.

The profitability of each exporting textile company surged by 10-15 percent while its workers remained where they were a decade ago because of rising inflation and devaluation of the Pak rupee.

The enormous size and import

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he Pakistani textile industry combined is the 8th largest manufacturer in Asia, contributing 8.5 percent to the country’s GDP, while employing about 45 percent of the total labour force (38 percent of it being manufacturing workers).

Pakistan is the 4th largest producer of cotton with the third largest spinning capacity in Asia after China and India and contributes 5 percent to the global spinning capacity. At pres-

‘MORE THAN RS200 BILLION OF THE EXPORT REBATE, SALES TAX REFUND ETC. OF THE TEXTILE INDUSTRY IS STUCK UP WITH THE GOVERNMENT, AND THEY ARE COMPELLED TO BUY ELECTRICITY AND GAS AT RATES MOST EXPENSIVE COMPARED TO OTHER COUNTRIES IN THE REGION’ Jawed Bilwani, President, Pakistan Hosiery Manufacturers and Exporters Association ent, there are 1,221 ginning units, 442 spinning units, 124 large spinning units and 425 small units producing textiles.

Textile is the most important manufacturing sector of the coun-

try and has the longest production chain, with inherent potential for value addition at each stage of processing – from cotton to ginning, spinning, fabric, dyeing and finishing, made-ups and garments.

The textile products have maintained an average share of about 62 percent in national exports.

Textile companies owners

“M

ore than Rs200 billion of the export rebate, sales tax refund etc. of the textile industry is stuck up with the government, and they are compelled to buy electricity

INDUSTRY

and gas at rates most expensive compared to other countries in the region. Even the water has to be procured through the tanker mafia,” said Jawed Bilwani, president of Pakistan Hosiery Manufacturers and Exporters Association.

Despite all this chaos, Pakistan’s exports have gone up this year, and all its credit goes to the exporters and not to the government, added Bilwani.

“The government has not given us any major incentive in the last 10 years. So, on what basis is the government expecting a major upsurge in exports,” questioned Bilwani, a business leader who is president of the SITE Industries Association.

Last year the government announced a package of Rs180 billion in 2017, said he, adding, “but it has released only Rs25-30 billion.

Subsequently, the finance ministry has linked this package with the growth.”

The industry cannot be run without energy and financing. The past and present government never considered releasing the stuck up money.

“If released, this stuck-up money may bring more dollars through higher exports,” said Bilwani, adding, the exporters were waiting for it.

The decision of the finance ministry to devalue the local currency further hurt the profits of local exporters and 20 percent depreciation in Pak rupee made the imports of raw material more expensive.

“Devaluation of the local currency was the wrong decision of the [previous] government and it will put the external account under pressure instead of supporting the exports,” Bilwani claimed.

The exporters said when the

government devalues the local currency, foreign buyers demand the share of the devaluation. The exporters get nothing from such measures, while they have to face costly import of raw materials, they claimed.

The president of Pakistan Textile Exporters Association (PTEA) said, the stuck up payments create liquidity problems for the exporting units – the main hurdle in getting optimum industrial growth.

Giving details, he said that Rs30 billion of textile exporters have been withheld in the sales tax regular refund regime, whereas another Rs10 billion have been withheld on account of custom rebate and Rs 15 billion under income tax credit. Similarly, incentives allowed under textile policy 2009-14 also remain unpaid with Rs20 billion being outstanding under TUF schemes, he said.

Another Rs10 billion under markup support and Rs3 billion are stuck up under the DLTL (Drawback on Local Taxes and Levies) scheme.

In addition to that, an amount of Rs21 billion is also unpaid against duty drawback of taxes under the Prime Minister’s Trade Enhancement Initiative, he noted.

Zahid Mazhar, senior vice-chairman, All Pakistan Textile Mills Association (APTMA) has recently welcomed Chinese interest to relocate their industry in Pakistan. He invited them to take advantage of liberal trade and investment policies of the Pakistani government by entering into joint ventures with the Pakistani entrepreneurs in the textile industry.

Highlighting the trade and investment policies of the government, Zahid Mazhar said that the government of Pakistan is an advocate of an open deregulated and market-driven economy, creating enabling environment by investing heavily in infrastructure and capacity building, special emphasis on attracting foreign investment and duty-free import of machinery, equipment, and raw material.

sector profitability ‘TEXTILE IS THE MOST IMPORTANT Textile espite all the furore from the textile industry, analyst Shanker MANUFACTURING SECTOR OF THE COUNTRY AND Talreja of Topline Securities said, HAS THE LONGEST PRODUCTION CHAIN, WITH the profitability of the textile sector by 10 percent in the INHERENT POTENTIAL FOR VALUE ADDITION AT currentincreased fiscal year, while the financial EACH STAGE OF PROCESSING – FROM COTTON cost of the companies declared in the result is 30 percent.

TO GINNING, SPINNING, FABRIC, DYEING AND quarterly “Every listed or non-listed textile FINISHING, MADE-UPS AND GARMENTS’ company has gained profit in the fiscal

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year 2017-18 from the share of Rs180

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billion,” the analyst claims. Major profit of the textile companies occurred from the depreciation of the Pak rupee, (half of which was passed on while the other half was profit).

“The main reason for the rising cost of doing business is the stuck-up export rebate and others incentives, which is around Rs 200 billion,” the analyst claimed.

Investment

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akistan’s textile industry has experienced decreasing investments over the last decade, as potential investors have been hesitant to make new investment due to high business costs. This has caused the sector to miss out on technological advantages to its competitors.

The All Pakistan Textile Mills Association (APTMA) announced that its members have a plan to increase investment in Pakistan’s textile industry by establishing 1,000 garment manufacturing plants with a total of $7 billion in investments, the association said.

The plan is to set up garment plants near major textile producing cities like Lahore, Sheikhupura, Faisalabad, Kasur, Multan, Sialkot, Rawalpindi, Karachi, and Peshawar, with the plants installing half a million stitching machines, which will boost annual production to 3 billion pieces.

New investments dropped to more than half a billion rupees ($4.52 million) in 2016-17, compared to Rs 1 billion ($9 million) in 2005-06, the association said. Further, currently, about 35 percent of the textile industry’s production capacity was damaged, causing loss of approximately $4.14 billion worth of potential exports.

Once the proposal is implemented, the industry will need an additional 10.3 million bales of raw cotton, 345 million kilograms of manmade fiber, 1.98 billion kilograms of additional yarn and an additional 7.93 billion square meters of processed fiber. This while cotton-pro-

‘DESPITE ALL THE FURORE FROM THE TEXTILE INDUSTRY, ANALYST SHANKER TALREJA OF TOPLINE SECURITIES SAID, THE PROFITABILITY OF THE TEXTILE SECTOR INCREASED BY 10 PERCENT IN THE CURRENT FISCAL YEAR, WHILE THE FINANCIAL COST OF THE COMPANIES DECLARED IN THE QUARTERLY RESULT IS 30 PERCENT’ ducing area and cotton production have decreased 30 percent and 38 percent, respectively, in Punjab since 2011.

The textile performance

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hile the textile sector performed poorly overall, readymade garments did show reasonable growth.

According to the Pakistan Bureau of Statistics, the exports of readymade garments registered 13 percent yearon-year growth in July-May 2017-18, which stood at $2.346 billion in 201718. Total exports of the textile industry grew by 9.82 percent in the last eleven months, to $12.336 billion. During the period, Pakistan’s textile exported cotton yarn worth $1.247 billion, cotton cloth $2.015 billion, knitwear $2.460 billion, bed-ware $2.055 billion, towels $736 million.

The APTMA members have reportedly provided the government with a long list of corrective and conducive policy measures in return for their investments, including implementation of long-term policies, like consistent nationwide energy prices, removal of Rs3.50 (3 cents) per kilowatt-hour surcharge on electricity tariff, an extension of the duty drawback scheme for five years and drawbacks to be increased every year by 1 percent for garments (up to 12 percent) and made-ups (up to 10 percent) against realisation of export proceeds.

The proposal also suggested the

‘ONCE THE PROPOSAL IS IMPLEMENTED, THE INDUSTRY WILL NEED AN ADDITIONAL 10.3 MILLION BALES OF RAW COTTON, 345 MILLION KILOGRAMS OF MANMADE FIBER, 1.98 BILLION KILOGRAMS OF ADDITIONAL YARN AND AN ADDITIONAL 7.93 BILLION SQUARE METERS OF PROCESSED FIBER’

government allow long-term financing facility (LTFF) to indirect exports, Islamic financing and building of infrastructure for garment plants.

Textile manufacturers in their budget proposal to the government have requested to decrease the cost of doing business primarily through decrease in electricity tariff in line with regional players.

Similarly, manufactures have also proposed for the timely release of pending refunds, continuation of the drawback duties and the reduction/ elimination of the customs duties on import of synthetic yarn and Polyester Staple Fiber (PSF).

Deteriorating Balance of Payment In May 2018, the current account deficit in the first 11 months of 2017-18 amounted to $15.9 billion, up 43.2 percent from the previous year.

According to data released by the central bank, the gap was $1.9 billion in May. This was nominally down from the preceding month, data showed.

The current account tracks a country’s overseas transactions, such as net trade, earnings on cross-border investments and transfer payments.

According to the leading global credit rating agency Moody’s assessment, Pakistan was facing increased external pressure arising from strong domestic and capital-import heavy investments under the China-Pakistan Economic Corridor (CPEC).

It projected the current account deficit for the financial year 2017-18 to be 4.2 percent of GDP and reserve coverage of external debt repayments was sufficient for now but projected it to erode.

The total liquid foreign reserves held by the country stood at $16.243 billion on June 22. The reserves held by the State Bank of Pakistan (SBP) stood at $9.662 billion, while commercial banks held $6.581 billion.

INDUSTRY

MAKES MOVES ON

’S USERS

The power dynamic between the social media platform and its photo-sharing app is shifting

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By Sarah Frier

n late June, Spencer Chen got an unusual notification from Instagram. The app prompted him to check out a friend’s new photo—on Facebook. Chen grabbed a screenshot and posted the notification on the internet, calling it a cry for attention by the older social network. It felt like a cheap trick, he says, like “placating big brother in the Facebook building.”

Chen is one of the tens of millions of people who used Instagram before Facebook Inc. acquired the photo-sharing app in 2012. Ever since, he says, he has anticipated the day when Facebook would start messing with the photo app to suit its needs. That day, he says, has come.

There’s no denying the power dynamic between Facebook and Instagram is shifting. Instagram has 1 billion users, more than Facebook had at the

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time of the acquisition. The property is worth more than $100 billion, according to a recent analysis by Bloomberg Intelligence. And Instagram keeps growing among a younger set of users who are critical to Facebook’s growth.

Also, Facebook users have been flocking to Instagram’s photo- and video-based app as an escape, tired of the political bickering and privacy scandals that plague the parent company. Users averaged 53 minutes a day on Instagram in June, just five minutes less than on Facebook, according to Android data from analytics company SimilarWeb. As growth of its user base slows, Facebook’s future is more certain with Instagram than without it.

“We would not be this confident in Facebook’s future if it wasn’t for Instagram,” says Rich Greenfield, an analyst at investment bank BTIG. “They’ve done a really good job with the cross-pollination.” That’s a big change from the years right after the $715

million acquisition, when Instagram depended on Facebook for advertiser relationships and the infrastructure needed to grow.

Instagram says what Chen experienced was a product test with a small contingent of users. Still, Instagram feeds Facebook in other ways.

Last year, Facebook launched its own version of an Instagram tool called Stories, which lets people post videos that disappear within 24 hours. (The feature was initially copied from Snap Inc., a competitor.) Greenfield noticed the Facebook version became more popular once it became possible for Instagram users to post their stories in both places with the click of a button.

Instagram Stories’ 400 million users present a significant opportunity for Facebook’s advertising business, according to Ken Sena, an analyst at Wells Fargo Securities. Instagram is on track to provide Facebook with $20 billion in revenue by 2020, about a

quarter of Facebook’s total, he wrote to investors. And cross-posting could help Facebook’s video ambitions. The company recently launched Facebook Watch, a television-like platform that it’s spent hundreds of millions of dollars on, mostly for content. That was followed by the rollout of Instagram’s IGTV, an app that allows anyone to produce and post longer-form videos.

Instagram has a more natural relationship with influencers, who have built up huge followings on the platform, so it hasn’t had to pay for them to use the new feature. Any of them can decide to cross-post their videos to Facebook.

“Maybe that becomes a driver for Facebook Watch over time,” Greenfield says.

So far the company hasn’t taken advantage of that opportunity, according to Krishna Subramanian, who works with top digital celebrities at Captiv8, a firm that measures influencer marketing. While “it does seem like Facebook is continuing to test notifica-

tions within Instagram,” he says, “from what we see on our side, it still looks like Facebook and Instagram are very separate products.”

What could lead to closer ties in the short term are some executive moves that went into effect in May. As part of the shuffle, the biggest in Facebook’s history, Chris Cox, its chief product officer, took charge of Instagram, WhatsApp, and Messenger, in addition to the main app. Adam Mosseri, the former head of Facebook’s news feed, was named vice president for product at Instagram, reporting to Instagram co-founder and CEO Kevin Systrom. Mosseri has been at the company 10 years and has deep relationships with Cox and Chief Executive Officer Mark Zuckerberg. “Adam has personally helped build a lot of the Facebook experience you use on your phone today,” Zuckerberg wrote about Mosseri on his Facebook page this week.

The company often talks to adver-

tisers about all its products collectively.

According to a person familiar with the matter, Facebook recently started an incentive campaign with some brands that covered three products at once: ads on Instagram Stories, on Facebook Messenger, and in the middle of Facebook videos. The person, who declined to be named for fear of losing the Facebook relationship, says it was the first time his client had received such an offer.

“The promo you heard about is not unique,” Instagram said in a statement. “We are continuously working with advertisers to help them find and discover the best formats for ads across the Facebook Inc. family.”

BOTTOM LINE - As Facebook’s growth starts to slow, Instagram—with a $100 billion valuation and 1 billion (younger) users—could be critical to the company’s future.

Courtesy Bloomberg Businessweek

MEDIA

Traditional news organisations are caught between many a devil and a deep blue sea: Fake news, social media, ever falling revenues combined making it an uphill task to keep their heads above water

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By Syeda Masooma

he business of journalism has never been easy. A lot more is invested into maintaining the staff and resources that go into news gathering and airing or publishing it than can be mined from selling newspapers or airtime. Yet for an informed society the service provided by these platforms infinitely valuable. Over time, especially the past two decades and a half, make it three at best, the traditional journalism mediums have undergone several transformations – each creating more challenges for the news organizations while adding to the convenience of the digital viewers and readers.

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When Google gained traction, the first thing to run away from the newspapers was classifieds. Online e-commerce channels made their strike, snatching away the display advertising from news publications.

The biggest – and the most recent – blow to the media organisations’ revenue channels has come from the social media. What’s left of the advertising business after classifieds and e-commerce is now slowly moving towards social media, leaving the already much squeezed and shrivelled print media high and dry.

The rising menace of ‘fake news’ further denting the credibility of news outlets altogether, and more often than not these two are intertwined. While the private, unregulated blogs and news outlets are thriving on fake news, the official news channels are experiencing the heat, both in terms of lower viewership and loss of advertising business.

Fake News

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bout 18 months ago, most people might have not been familiar with the term ‘Fake News.’ This phenomenon is not new but its new-found popularity has become a global threat to the journalism landscape, democracy, and law and order.

The idea behind fake news creation was, most likely, to inform people in a satirical manner. Even today, the claimed purpose of fake news remains to inform and not mislead. Several renowned publications worldwide, including The Washington Post, The New Yorker, The Times Magazine, and The Times of India are known to indulge their readers in humorous explanations of some very serious issues faced by their country.

However, the reason that this phenomenon remained a scattered source of information with little to no impact on general life so far can be traced back to the recent influence of social media. Platforms like Facebook and Twitter were launched in the mid 2000s, but it was not until the turn of the decade that apps like Instagram and Snapchat were launched, and overcame the news platforms completely along with Facebook and Twitter.

Today, they have taken the position of the primary source of news, especially for the digital generation. The preferred medium to get news is also shifting

‘THE BIGGEST – AND THE MOST RECENT – BLOW TO THE MEDIA ORGANISATIONS’ REVENUE CHANNELS HAS COME FROM THE SOCIAL MEDIA. WHAT’S LEFT OF THE ADVERTISING BUSINESS AFTER CLASSIFIEDS AND E-COMMERCE IS NOW SLOWLY MOVING TOWARDS SOCIAL MEDIA, LEAVING THE ALREADY MUCH SQUEEZED AND SHRIVELLED PRINT MEDIA HIGH AND DRY’ from TV and newspapers to mobile phones and computer screens.

Not only social media platforms have made traditional news outlets almost irrelevant but they have also become a necessity for these traditional platforms to maintain presence in the industry. The Wall Street Journal is possibly the only famed publication left to remain independent of social media influence, since all its reports need to be bought to be read. And that is only because WSJ has built a strong reputation for its content quality and has specific segments of customers who read and consult its reports.

This luxury is not available to the newspapers and even some TV channels anymore, owing to the falling trust of public in news mediums. For a regular news agency, free news availability on several platforms over internet has made it virtually impossible even to gain an online paid subscription.

The impact felt by the print mediums is two-fold. On the one hand, there has been an erosion in the number of readers/subscribers to platforms imparting sensational and possibly false news, creating lack of trust and credibility in readers towards news sources altogether and making journalists’ jobs more difficult. And on the other hand, hitting them in terms of revenue through far lesser advertising volume, partly owing to the same private blogs and platforms creating ‘viral’ content geared towards people’s preferences instead of based in reality or truth. The media outlets themselves cannot be absolved of the responsibility either.

The fact that blogs etc can afford to keep the readers’ and viewers’ preference in sight while creating content while traditional news platforms have to report almost everything, has also become a source of falling popularity for the news platforms. Founder of Pro-Pakistani (a digital platform pub-

lishing technology, telecom, business and auto news in Pakistan), Aamir Atta said, “Jang and other Urdu publishers have been hurt by the lack of local language support from Google and the ecosystem itself. Due to the absence of such key support, new user acquisitions are far lower than English papers which hurts rankings. Overall, publishers need to understand millennials and their taste in content.”

Another perspective to the popularity of blogs and private sites was provided by an avid reader of such private blogs, Ahmed Saeed. He said, “The TV channels are all about politics. They barely discuss the other social matters like rising instance of child abuse or dilapidated infrastructure of the roads, for instance. So blogs resonate more with my opinions instead of newspapers or news channels harping on the same politicians day in and day out.”

Another blogger, Sana Batool said, “Blogs are more popular and getting more media companies moving their content to digital platforms because they have the option to support their blogs with a video and there is also more room for freedom of opinion as well as immediate feedback from the readers.” This brings another idea into perspective, that due to advertising increasingly being concentrated from the government could also be responsible for media - especially newspapers - being especially focused on political issues, instead of delving into general social matters. It could also be a result of viewers feeling more valued with the option of giving their feedback and receiving responses for it. Co-founder of MangoBaaz Ali Ahsan spoke to Profit about it and said, “Our most successful strategy has been to define who our audience is and what they care about. By making relevant content for a specific audience, we’ve seen growth in not only our website traffic, but also

MEDIA

across the board on our video viewership, social media followers and overall brand equity.”

Social Media challenges

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nother of such platforms Urdupoint works with the similar strategy of keeping the audiences in the front seat of strategy making. The website’s founder Ali Chaudhry said “Neutral news” is their mode of action with which they keep the readers hooked. He also said.

“We are viral on social media which has helped us in reaching millions of viewers.” This shows the impact of social media, but before delving into the challenges posed by social media to the traditional news platforms, let’s look at the internal challenges faced by them.

In modern times, the ‘Breaking News’ or ‘Instant updates’ no longer make the cut. To bring readers to your website or channel, attractive and sensational content is necessary. It is especially true for small outlets without a regular printed newspaper or a TV channel or an established readership.

It has also become especially significant since social media platforms like Facebook, Twitter, and Google News have become the de facto publishers for news. Now it’s all about creating sensational and ‘catchy’ content. While the traditional publications are bound by the principles of reporting factual news and refraining from creating false content, there is no such limitation for private websites and blogs.

Not only fake news has allowed private bloggers and random news outlets to pull advertisements away from the traditional news channels, but it has also endangered the integrity and trust that people place in these newspapers and TV channels to get their information. Of course it can be argued that not all personal blogs are imparting fake news, but the fact that they are unchecked and unaccountable to anyone unlike regular print and electronic news channels, means that these blogs have no compulsion to ensure that the material written and shared on these platforms is truthful and accurate.

Influence of personal opinions regarding any particular issue is also cause of concern, since it defeats the very purpose of journalism which is to inform the facts untainted by any judgment.

Then there is no precedent or pressure on such platforms to issue apologies

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‘THIS LUXURY IS NOT AVAILABLE TO THE NEWSPAPERS AND EVEN SOME TV CHANNELS ANYMORE, OWING TO THE FALLING TRUST OF PUBLIC IN NEWS MEDIUMS. FOR A REGULAR NEWS AGENCY, FREE NEWS AVAILABILITY ON SEVERAL PLATFORMS OVER INTERNET HAS MADE IT VIRTUALLY IMPOSSIBLE EVEN TO GAIN AN ONLINE PAID SUBSCRIPTION’ or redact their news after having been proven wrong. The basic principles of hiding names, of victims of horrendous crimes like rape for instance, are also not followed on any of these platforms.

In the name of freedom of speech, several of these blogs incite violence and create wars of words – all the time gaining more views leading to higher profits. The censorship laws on usage of appropriate language and regard for state institutions are also unknown ideas for these blogs and news platforms.

Following the lead of these viral content generating platforms, at times, TV news channels and newspapers also fall prey to false news and join the bandwagon.

Put together, this culture of unchecked information being spread on social media has led many to believe to write and post anything and everything without any regards to the impact it can have on the lives of people concerned, or how difficult it could become for state institutions to uphold law and order.

Fake News Phenomenon

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he ‘fake news phenomenon’ has also become a source for defamation and incrimination. Conspiracy theorists and propaganda instigators have found a new haven for their activities and in the absence of any censorship for these private blogs sites it is an impossible task to check them.

Higher rankings also mean more influence on the viewers. Considering how quickly news can spread these days, irrespective of its accuracy, higher viewership should also come with higher responsibility, which tragically is not the case, especially in Pakistan. The recent news of a man’s five daughters raped is just one of the many examples we come across every day. With

an actual tragedy in the backdrop, several news venues capitalized on the moment and shared the fake news gaining innumerable views and shares.

The spillover effect of desperation, frustration and eventually violence in the citizens is another cost of such fake news that cannot be ignored.

Then there is the matter of revenues. While the primary source of revenue for news outlets remains advertisements, the likelihood of gaining advertisements depend on the popularity of any news source, in this case the website. Most blogs or news websites not falling under registered and regulated media agencies are free to generate content that the viewers want to read instead of the fact based truth. While the same may be argued for traditional news outlets, the necessity to retract or issue an apology after airing or printing a false story is still a satisfactory check for the latter. Therefore it can be assumed that the traditional news sources might be writing opinionated pieces, but they are still not allowed to print or air completely false news. The result of this unchecked content spread is that the viewership of private blogs and websites rise while the media outlets see a fall in their viewers, leading to loss of advertisements financing.

These websites and blogs are not the only cause of concern for the traditional media outlets. The impact that social media platforms are having on these media entities is now greater than ever and has no end in sight.

When the journalistic landscape shifted from print to digital, the whole industry underwent an overhaul. Those who were quick to adapt to the changing tastes of readers for conveniences survived, while others were squeezed out. Now, Facebook, Twitter, and Google have taken over the news industry and have become de facto publishers

themselves. By the end of 2016, even Mark Zuckerberg had retreated from his previously rigid position that Facebook was “just a technology company,” to acknowledge that it was a “new kind of platform.”

According to Alexa, the most trusted websites ranking tool in the world, only five proper media outlets’ websites rank among the top 50, namely Dawn, Express, Dunya, Jang, and the Tribune. And the top ranked among these also start as low as the 14th rank – Dawn.com. As opposed to these, Urdupoint.com, Dailypakistan. com.pk and Hamariweb.com all have rankings even higher than Dawn on Alexa. One might argue that their popularity may stem from the absence of language barrier, but that still does not explain a far higher number of visitors as compared to Dunya and Jang News – two of the most watched channels in Pakistan. Some viewers of these sites are also of the opinion that the traditional newspapers are too focused on political issues and they want to read about other things like technology and fashion. Unsurprisingly Google, YouTube and Facebook have comfortably occupied the top spots in these rankings for Pakistan.

So what is it that makes these web channels or websites so popular, apart from sensational content and news tailored to the interests of the viewers? According to Alexa four factors are counted in evaluation of ranking: daily time on site, daily page views per visitor, percentage of traffic from search, and total sites linking in. While longer time spent on the websites may account for better content under general norms, difficulty in finding the required content may also lead to the same outcome.

Likewise percentage of traffic from search could easily be a result of AdWords and not the actual relevance of the content. And if a site is linking in several sites only because it is rephrasing other websites’ content and linking back to them, instead of generating new content, that also ends up being a misleading factor. The point here is not to debate Alexa’s chosen criterion, since these four determinants are used globally to rank websites, but to evaluate the possible tricks of the game, cracked by some highly ranked websites in the country, despite being younger, weaker and low in content quality than their older, stronger and

‘WHILE THE ADVENT OF INTERNET AND SOCIAL MEDIA WERE ASSUMED TO BE SOURCES OF EASY AND QUICK INFORMATION FOR THE GENERAL PUBLIC, INSTEAD THEIR CONVERGENCE WITH JOURNALISTIC INSTITUTIONS HAS ENDED UP IN BRINGING TO THE FORE THE WORST IN BOTH’ high quality providing competitors ending up at lower ranks.

Traditional platforms taking a pasting

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nother possible reason for the traditional news platforms’ lower viewership can be their contentment with their initial popularity and absence of any new effort to maintain or improve their rankings.

Owner of Urdupoint.com, Ali Chaudhry agrees to the slack behaviour on the part of the websites that have lost traffic. “Big brands [like Jang and Nawa-i-Waqt etc.] lack dedication, that’s the main reason they are behind us. We have a staff of 75 dedicated only to this portal, that works 24/7.”

However he also attributes his website’s success to being viral on social media. That brings us to the point where social media is in fact now shaping the news industry instead of acting as an aide in imparting information.

That also comes with its own costs to the society in addition to the costs to the media agencies.

A report by Emily Bell and Taylor Owen, “The Platform Press: How Silicon Valley reengineered journalism” discusses the impact of social media in great detail. It says, “Publishers are continuing to push more of their journalism to third-party platforms despite no guarantee of consistent return on investment. Publishing is no longer the core activity of certain journalism organizations.”

The increasing influence of social media has not only made getting advertisements difficult for traditional media houses but has also caused loss of branding and lack of audience data. While Facebook promises greater insights into the readers’ data its own functionality is based on algorithms that can only ensure exposure of ‘wanted’ or ‘liked’ content to a particular user instead of complete access and independence of choice in reading

news.

On top of it, the fact that ‘viral’ content – a phenomenon brought on by social media, encourages lower quality content and discourages higher quality news reporting. The report also mentions that these new publishers are now making more content than ever without any regards or control over which content reaches which reader.

Social media platforms also create filter bubbles – that is to say that a particular Facebook user is most likely to only come across news shared by people in their friends’ list and according to their likes on Facebook brought by the algorithmic workings.

Perhaps the only benefit of social media to news outlets is the speed and efficiency with which these platforms reach the audiences. With increasing difficulties in determining the target audience, along with ever–rising competition in the creation of news content, traditional media houses are looking ahead at even more challenging times. While the advent of internet and social media were assumed to be sources of easy and quick information for the general public, instead their convergence with journalistic institutions has ended up in bringing to the fore the worst in both – fake news and low quality content in attempts for higher advertisement revenues. The report said that only two ways appear in sight for news organizations to remain in business in modern times: either maintain their own subscriptions and develop an exclusive readership or take their dependence off publishing as a means to make revenues.

How quickly can Pakistan’s publishing industry adapt to this strategy, only the time would tell. For now, the only fact staring one in the face is that the news industry is up against stiff challenge as social media sites take on the role of being the primary publishers and the arenas creating viral yet low-quality content continue to operate unchecked.

MEDIA