Profit E-Magazine Issue 45 by Profit (by PT)

11 Weekly Roundup 16 Pakistan: Of apples, cars, oil and IMF 20 The fate of the Taseers

28 28 Taking Pakistan higher on the World Bank ladder 32 Ezbuy.com, bringing the world to Pakistani consumers

36 Imran Khan’s First Test: Pakistan’s Troubled Economy 39 Why packaging is not a ‘me too’ business

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 Bukhari 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

THE COST OF BORROWING In his first speech to his fellow citizens as the Prime Minister-elect of Pakistan, Imran Khan stated his desire to have Pakistan play a mediating, peacemaking role in the Middle East, and implied heavily that the warring parties he was referring to were Saudi Arabia and Iran. We bring this up because of a news item that appeared recently in the London-based Financial Times newspaper that suggested that Pakistan may be about to borrow up to $4 billion from the Jeddah-based, Saudibacked Islamic Development Bank as part of the government’s attempts to plug the $12 billion gap in the country’s liquidity reserves. The last time Pakistan received a large sum of money from Saudi Arabia was in 2013, and at that time, the money was given by Riyadh under the assumption that Pakistani soldiers would fight in Prince Mohammad Bin Salman’s war in Yemen. Pakistan was able to get out of it last time because then-Prime Minister Nawaz Sharif had the smart idea of getting a near-unanimous resolution in Parliament that prohibited Pakistan’s armed forces from being sent off to fight in a petulant Saudi prince’s war. Well, it is now five years later, and Pakistan needs more money than it did in 2013, and the Saudi-backed institution is offering more than it was five years ago, but the war in Yemen continues to rage on, and we have no reason to believe that the Saudis have lost their desire to have

Pakistani jawans do the fighting and dying there. We believe the incoming prime minister when he says that he wishes for Pakistan to play a peacemaking role in the Middle East, but we hope he has the good sense to turn down any money that comes attached with any preconditions. Pakistan’s foreign exchange reserves are depleted and need replenishment, but not at the cost of the lives of our jawans being sent off to die in a futile, cruel war. When it comes to nation states, there is much more to the cost of borrowing than the interest rate, particularly if the lender in question has blood on their mind as the price for their financial support.

Farooq Tirmizi Managing Editor

FROM THE MANAGING EDITOR

Readers Say NAYA MINISTER, MEET PURANI MINISTRY In defence of bureaucracy The writer exhibits deep understanding of the inner workings of finance division or any government department but also holds a grudge against bureaucracy due to its obstructionist approach. There is a reason why bureaucracy around the world is criticised for red-tapism and its inability to take decisive steps. This situation is further complicated in a developing country with weak civilian government constantly under stress from other power centres – such as militablishment, judiciary and media. Bureaucrats have to act according to law and cannot act beyond the confines of law even if common logic so entails. Political governments have an uncertain fate and it is the bureaucrats who are left to answer on behalf of the departments and decisions of the ministers (who have not always been the ideal philosopher-kings driven by the sole desire to set the house in order according to economic principles). There is a huge difference between running a private entity and incurring public expenditure when even there is such a huge trust deficit of public institutions as in Pakistan – some real and some created. The writer must acknowledge there is no dearth of brains in the public sector but they are often wasted by not appointing the right man to the right job. Moreover, the man heading finance ministry for well over a decade Dr Waqar Masood was from the private sector and we have had several ministers from private sector (Shaukat Aziz, Hafeez Pasha etc.) Faiz Hameed

How to ContaCt

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com

Needed: Cautious approach Well-written article. The challenges ahead need to be addressed with cautious approach. Cutting down extra expenses, leakages from the system is a good approach to start with. Increasing revenue base requires vigorous efforts on reviving indigenous industries, attracting FDI, exploiting full potential of resources available across the country for which basic infrastructure, ease of doing business, and strengthening the functioning of regulatory bodies is essential. Saima

Freebies need to be forsaked I think it is highly likely that certain politically-motivated initiatives such as the BISP, the laptop and the taxi schemes, and other similar publicity stunts would be abandoned. They didn't deliver anything except making people greedy of getting something without doing anything. Arif Concise analysis Good and very concise. Unlike many analysts, the writer raises the questions and answers with clear logic. Zubair Parekh IS OPEN SKIES REALLY CAUSING TROUBLE FOR PAKISTANI AIRLINES? PIA’s many woes Actually the woes of PIA are due to over staffing, inefficient staff, frequent cases of smuggling drugs to Europe, bad service, pathetic condition of aircraft and worst on-time departure statistics. Why have local airlines such as Shaheen and Airblue gained market share over PIA? To remain in business you need value addition as there is tough competition. Passengers have the right to select their mode of travel and the airline based on fare, service quality, in-flight comfort, safety and on-time departure! Do not bury your head in the sand and just blame Open Skies Policy. Come out in the market and compete by improving your product. Why didn't you list the objections raised by TSA when approval for direct flights was requested? Shahid The CAA is to blame I strongly believe that the Open Skies Policy is the main cause… The rest can be taken care of. The CAA is totally responsible for this [fiasco] because they have taken huge bribes from the Middle Eastern airlines as result of which PIA is suffering. No country in the world has [such] onesided bilateral agreements in which the national flag carrier suffers. I strongly believe that PIA [can be made to] turnaround if there is professional management with airline experience, willingness of the government and the ban on unions. Imran Maqsud

COMMENTS

PTI leader and finance minister-to-be Asad Umar

QUOTE

“The government’s role in an economy is that of a facilitator. The role of the private sector is vital for restoring and uplifting it”

“I don’t believe in PIA’s privatisation. Pakistan lacks the conditions in which privatisation works” Pakistan International Airlines Chief Executive Officer Musharraf Rasool Cyan

$12b

bailout is being sought by Pakistan from the IMF according to a report published by the Financial Times. While talking to the Financial Times, one government advisor told “We are in a rough area and need help. I can’t imagine we could do that without the IMF’s support.” The advisor went on to state the country would require a loan in the range of $10 to $12 billion, over double the $5.3 billion amount obtained from the IMF during the course of the previous bailout in 2013. This will be the largest ever bailout Pakistan has ever obtained from the IMF if the agreement is reached. However, analysts cautioned Imran Khan would find it hard to deliver on his promises of spending public money on giving access to health-care for all, expanding the social safety net due to the country’s economic situation. The country obtained over $5 billion of loans from China during last FY18 and a 20 depreciation of the rupee against the dollar to keep it afloat. According to Western analysts, the local currency is still overvalued and needs to further depreciate by 10 percent. Pakistan’s forex reserves have eroded drastically in recent months, as rising oil prices have jacked up the cost of imports, while exports remain sluggish. Analysts believe a return to the IMF is unavoidable and will have damaging repercussions on short-term economic growth and Imran Khan’s political reputation.

15.44pc

rise was recorded in domestic production of tractors during the first 11 months of FY18. On year-on-year basis, the production of tractors also witnessed a positive growth of 19.56 percent in May 2018 as it was recorded at 6,870 units as against the production of 5,746 units in May 2017, according to the Quantum Index Number of large scale manufacturing industries released by the Pakistan Bureau of Statistics (PBS). During the period from the July-May, 2017-18 the production of trucks increased by 20.27 percent and it was recorded at 8,544 units as against the production of 7,104 units of the corresponding period of last year. However, on year on year basis, the output of trucks witnessed a negative growth of 7.02 per cent as it went down from the output of 869 units in May 2017 to 808 units in May 2018 while the output of buses declined by 19.51 per cent by declining from 82 units to 66 units.

BRIEFING

$4.5b

credit financing facility has been extended by the Islamic Development Bank (IDB) to facilitate oil imports for a three-year period. A member of the IDB Group, the International Islamic Trade Finance Corporation (ITFC) rolled over a loan of $100 million last fortnight, said sources in the ministry of finance and economic affairs. The Economic Affairs Division (EAD) secretary signed the letter of amendment for the credit facility. The financing from ITFC will help Pakistan meet energy requirements for the period from 2018 to 2020. It will also allow the country to finance vital import of crude oil and refined petroleum products. The $100-million rollover is part of the $4.5-billion assistance, a threeyear framework agreement signed by Pakistan and the IDB in April this year. Initially, the IDB had committed $3.2 billion, which was almost similar to the previous facility that ended in 2017. However, on Pakistan’s request its size was enhanced to $4.5 billion for the 2018-20 period, said a source in the finance ministry. The fresh facility has been obtained at the London Interbank Offered Rate plus 2.27 percent, which is 48 basis points cheaper than the previous facility, said the sources.

“Our leadership will protect the money of the poor. We will have to adopt austerity measures to make the country progress” Pakistan Tehreek e Insaaf (PTI) leader Arif Alvi

QUOTE

Rs1,800

per bag was the price of Urea, as demand and supply gap rose, the price of the commodity is on the ascend. Urea’s maximum retail price is Rs1,600 and being sold for Rs1,700 in Punjab and Sindh and in Khyber Pakhtunkhwa (KP) it is retailing at Rs1,800 per bag because of supply slowdown. The farming community misery has been compounded by being subjected to the whims of the dealers who are exploiting the situation and are involved in hoarding the commodity with manufacturers. Consequently, urea prices are being pushed up by dealers as supplies dwindle due to the closure of some manufacturing plants.

Rs14.82b

consolidated profit was recorded by Lucky Cement for the financial year ended 30th June 2018. This comes after taking out Rs1.35 billion attributable to non-controlling interests for the financial year ended June 30, 2018, which translates into earnings per share (EPS) of Rs45.83 per share as compared to Rs50.18 per share reported last year. On a consolidated basis, the company achieved a gross turnover of Rs124.68 billion which is 13.6 percent higher as compared to last year’s turnover of Rs109.80 billion. With regards to the company’s standalone performance, the gross sales revenue of the company increased by 9.4 per cent to Rs67.38 billion compared to Rs1.60 billion reported last year. The increase in revenue was mainly due to higher volumes and increase in Federal Excise Duty and Sales Tax. Furthermore, Lucky Cement recorded net profit after tax of Rs12.20 billion which is 10.9 percent lower as compared to last year.

5.8pc

consumer price index (CPI) inflation was registered in July 2018 on a year-on-year (YoY) basis as compared to an increase of 5.2 percent in the previous month and 2.9 percent in July 2017. On month-on-month (MoM) basis, CPI increased by 0.9 percent in July 2018 as compared to an increase of 0.6 percent in the previous month and decrease of 0.3 percent in July 2017. Core inflation measured by non-food non-energy CPI (Core NFNE) surged by 7.6 percent on (YoY) basis in July 2018 as compared to an increase of 7.1 percent in the previous month and 5.6 percent in July 2017. On (MoM) basis, it increased by 1.2 percent in July 2018 as compared to increase of 0.3 percent in the previous month, and an increase of 0.7 percent in the corresponding month of last year July 2017.

$1.339b

increase in Pakistan’s foreign exchange reserves was recorded for the week ended 3rd August, 2018. The forex reserves of the State Bank of Pakistan now stand at $10.350 billion. The reserves of the other than SBP increased by $11 million and stood at $6.730 billion. The total reserves of the country enhanced to $17.079 billion up by $1.350 billion compared to previous week position of $15.729 billion. According to the news, China has agreed to immediately give a $2 billion loan to Pakistan as “official bilateral inflow” to ease pressure on the next government. According to the reports, over $1 billion has already been transferred to the SBP accounts this week, and it reflects in the reserves’ data today. The received amount pushed up SBP-held foreign currency reserves to $10.350 billion. The $2 billion loan will help Pakistan to maintain its reserves and to reduce pressure on official foreign currency reserves.

Rs8b

consolidated profit after tax was declared by Pakistan’s largest bank Habib Bank Limited for the first half of 2018. Along with the results, the Board declared a dividend of Rs1.00 per share (10 per cent), bringing the total dividend for the six months of 2018 to Rs2.00 per share. Profit before tax for the six months of 2018 was Rs14.1 billion. The consolidated Capital Adequacy Ratio (CAR) as of June 30, 2018, crossed the 17 percent mark, rising to 17.1 percent and the Tier 1 CAR rose by 79 bps over December to 12.8 percent. HBL’s core domestic business continues on a strong trajectory, with steady growth in key drivers. Total domestic deposits increased by 8 per cent to nearly Rs1.9 trillion and our leading market share increased further, to 14.4 percent.

“Efforts are being made to get duties reduced on goods exported by Pakistan. The mission in Washington is busy in dialogue” Pakistan Ambassador to the United States Ali Jehangir Siddiqui

QUOTE

Rs9.8t

were added to federal government debt in the last five years at an annual growth rate of 13.5%, reported the State Bank of Pakistan (SBP). Five years ago, total debt of the central government stood at Rs16.4 trillion, which has grown rapidly during the PML-N government’s tenure. The debt is exclusive of all obligations that are not the direct responsibility of the finance ministry. The pace of debt accumulation during the past five years has squeezed fiscal space. The cost of debt servicing alone in the first month of this fiscal year was over one-third of the total spending in July, owing to the increase in interest rates by the central bank.

5.10pc

increase was posted in cement despatches during July 2018, the 1st month of financial year 2018-19. The year 2018-19 started on a positive note for both the domestic and export sectors. In July 2018 the total cement despatches were recorded at 3.554 million tonnes that were 5.10 per cent higher than the despatches in July 2017 which was 3.382 million tonnes. Despite a slowdown in economic and construction activities due to the elections, it did not dent the growth much, which depicts long-term sustainable growth for cement and construction sectors. For the month of July 2018 exports increased by 9.25 per cent from 0.476 million tonnes in July 2017 to 0.520 million tonnes last month whereas the domestic despatches increased by 4.42 per cent from 2.906 million tonnes in July last year to 3.035 million tonnes in July 2018. The growth in exports is consistent but is higher due to a smaller base of exports. The domestic growth although lower in percentage is higher in terms of volume due to higher domestic sales base.

$300m

in new security funding has been pledged by the United States for Southeast Asia. as China forges ahead with plans to bolster its engagement in the region. Pompeo unveiled the figure to reporters on the sidelines of a meeting of foreign ministers from the 10-member Association of Southeast Asian Nations (ASEAN) and other officials from around the world in Singapore. “As part of our commitment to advancing regional security in the Indo-Pacific, the United States is excited to announce nearly $300 million in new funding to reinforce security cooperation throughout the entire region,” he said. The new security assistance will strengthen maritime security, develop humanitarian assistance, peacekeeping capabilities and counter “transnational threats”, he added.

$200m

benefit would accrue to Pakistan on signing Free Trade Agreement (FTA) with Thailand. Pakistan and Thailand would present their final list of FTA incoming round of negotiation scheduled for September that is aimed at increasing trade liberalisation between both the countries. Both sides had exchanged the final offer lists of items for free trade, including automobile and textile sectors in order to remove the reservations of both sectors. Pakistan wants concession on 110 products on textiles, agro-products, plastic and Pharmaceuticals as the same was granted by Thailand to other FTA partners in these products, a top official of the commerce ministry told APP. He said that Pakistan had relative advantages over Thailand in some 684 commodities including cotton yarn and woven textiles, ready-made garments, leather products, surgical instruments and sports goods.

$2b

has been earmarked for e-governance system by Pakistan Tehreek e Insaaf (PTI) according to its digital policy. As per PTI’s digital policy, it will be focusing on private-public partnership in the country’s information technology sector which can create 1 million additional jobs. Yusuf Hussain CEO Ignite said several countries had been able to save billions of dollars via e-government and appreciated this decision. The incoming government in its manifesto said it intends to create 10 million jobs over the course of next five years. From these jobs, 1 million will be created in the IT sector via youth training and a special focus on exports. PTI intends to allot $2 billion for citizen services, digital infrastructure and various e-government initiatives over the next five years.

BRIEFING

“There is a need to improve tax environment and effective management of debt capital market” Pakistan Stock Exchange Managing Director Richard Morin

QUOTE

$200m

loan has been obtained by Pakistan from Standard Chartered Bank London to finance Liquefied Natural Gas (LNG) imports. The loan has been obtained at a 12-month floating rate London Interbank Offered Rate (LIBOR) plus 1.4 percent. Pakistan obtained $1.1 billion loans from Standard Chartered Bank in last two years, said officials in the Ministry of Finance and Economic Affairs. And the officials said the agreement allowed provision of additional financing. In last financial year 2017-18, Standard Chartered Bank had extended a commercial loan of $200 million in three tranches received between November and January. The last $200 million loan is set to mature in September.

$12b

$10b

offshore gas pipeline bilateral negotiations are in progress to finalise a Memorandum of Understanding (MoU). “The MoU with the Gazprom, a Russian energy giant, is being finalised for the investment. The Russian investment in Pakistan’s energy sector and crucial projects such as the offshore pipeline will eventually encourage regional connectivity,” Inter-State Gas Systems (Pvt.) Limited (ISGSL) Managing Director Mobin Saulat said on Wednesday. He said, the ISGSL, a state entity working under the Petroleum Division of the Energy Ministry, is poised to play a leading role in forging energy cooperation with Russia at the bilateral level. Saulat said a high-level Russian delegation was expected to visit Pakistan soon to discuss matters related to the $2 billion North-South gas pipeline project, besides a MoU for the offshore pipeline deal. Once the MoU is signed, a feasibility study for the offshore gas pipeline project would commence next year.

1,076

new companies were registered by the Securities and Exchange Commission of Pakistan (SECP) during July 2018. As compared to the corresponding month of the last financial year, it represents a growth of 30 per cent as compared to the corresponding period last year, raising the number of registered companies to 88,701. The massive increase is the result of the SECP’s various reforms measures, i.e. introduction of a simplified combined process for name reservation and incorporation, reduction of the fee, assistance provided for incorporation by facilitation wings of CROs etc. Around 73 per cent companies were registered as private limited companies, while around 24 per cent were registered as single-member companies.

$124.412m were spent on agricultural machinery import during FY18. During the period from July-June, 2017-18, agriculture machinery worth $124.412 million were imported as against the import of $118.743 million of the same period of last year, according to the data of Pakistan Bureau of Statistics (PBS). During the period under review, other machinery worth $3.666 billion were imported, which posted about 9.28 per cent growth when it was compared to the import of $3.354 billion of the same period last year. Meanwhile, in last fiscal year, telecom machinery valuing $1.534 billion imported as compared the imports of $1.351 billion of the same period of last year, whereas mobile phones worth $847.654 million imported as against the US$ 709.690 million of the same period last year.

BRIEFING

While China is part of the story, it is not the piĂ¨ce de rĂŠsistance

By Gibran

akistan is currently under an un-remitting balance of payments crisis with foreign exchange reserves falling below US $10 billion, barely enough to cover two months of imports for one of the world’s 40 largest economies. The cause: a ballooning current account deficit that has quadrupled in size across two years because Pakistan has been importing much more than it exports.

The misconception

onventional wisdom is that the problem is driven by the China Pakistan Economic Corridor (part of China’s Belt & Road Initiative), a paradigm shift in bilateral economic relations marked by multibillion dollar investment in infrastructure and energy. Import of Chinese machinery, manpower and resources as well as repayment of Chinese loans to fund the corridor has therefore pulled down reserves from a high of US $18 billion two years ago, prompting Pakistan to once again knock on the doors of IMF for a bailout, its twelfth such approach since the 1980s. The tale mirrors similar news from Africa, South Asia and other countries benefitting from China’s foreign policy driven largesse, ostensibly marking another story of overstretch by the middle kingdom.

‘MAIN-STREET AND NUMBERS, HOWEVER, PRESENT A DIFFERENT STORY. FRUIT SELLERS IN THE BUSTLING PORT CITY OF KARACHI OFFER A CART LOAD OF APPLES FROM NEW ZEALAND AND CHINA. FURNITURE SHOPS BOAST WARES FROM TURKEY AND EUROPE’ A problem of consumption

ain-street and numbers, however, present a different story. Fruit sellers in the bustling port city of Karachi offer a cart load of apples from New Zealand and China. Furniture shops boast wares from Turkey and Europe. Edible oil imports from Malaysia and Indonesia have grown constantly, touching US $2 billion this fiscal year. Markets are abuzz with imported cell phones and cars including SUVs from Japan and South Korea line the meandering streets of major urban centers. Even the textile sector, that hallowed fort of the country’s export machine, is facing competition from imported western brands. The country of over 200 million with a voracious appetite and over 5% growth is consuming increasing quantities of imported goods, even in areas where it’s agrarian economy should provide local producers a competitive edge. Then there is oil. Petroleum and LNG imports have soared 60% over two years as oil price increase and

rising thermal power generation capacity enabled by Chinese investment helped bridge Pakistan’s 6 Gigawatts of energy deficit that used to cause rolling blackouts across the country. Most of the new energy has gone towards domestic consumption with industrial expansion lagging behind its potential. While China is part of the story, it is not the pièce de résistance. Import of Machinery and heavy transportation equipment accounts for less than 15% of the widened current account deficit. Imports from China have remained stagnant as a percentage of total imports for the past three years. While repayment of debt has been increasing, it is a dip in the ocean compared to the more significant issue of trade imbalance. On the flip side, Chinese inflows have significantly supported balance of payments. Chinese investment now accounts for over half of total inward investment and state-owned policy banks have provided much needed external account buffer to finance what is mainly a consumption driven problem.

Reforms under IMF Umbrella

s the commodity cycle turns, Pakistan finds itself in a familiar position where an overvalued exchange rate exacerbates a problem of structural reform and lack of competitiveness. The solution is to address both. China has been part of the solution by helping bridge the energy deficit and channeling much needed investment into infrastructure that can help bring goods to port. Some of the steps needed to address imbalances have already been

ECONOMY

taken, with four currency adjustments since December 2017 devaluing the Pakistani rupee by over 20% against the US dollar. Interest rates have increased by 1.75% over the last six months looking to address an overheating economy. However, avoiding imminent default on international payments requires doing more. While China has recently provided additional buffer with a US $2 billion loan, that is not suffi-

cient. What is required is the discipline of an IMF programme complemented by support from allies like China and Saudi Arabia. The newly elected Pakistan Tehreek e Insaaf government coming on the back of popular support has the mandate to engage the Fund and initiate reforms. It is not just a Chinese problem either. Repayments to IMF double in 2019 and increase by another 50% in 2020. The fundâ&#x20AC;&#x2122;s stated purpose

is that it â&#x20AC;&#x153;promotes international monetary cooperation and exchange rate stability, facilitates the balanced growth of international trade, and provides resources to help members in balance of payments difficulties.â&#x20AC;? That in a nutshell is the Pakistan problem. An approach to the fund driven by genuine macro-economic structural problems should not be sacrificed at the altar of global foreign policy.

ECONOMY

THE FATE OF THE

TASEERS

The financial costs of opposing the blasphemy law in Pakistan?

Shehryar Taseer is trying to rebuild his familyâ&#x20AC;&#x2122;s business empire built by his slain father, but faces legal challenges and the long shadow of Salmaan Taseerâ&#x20AC;&#x2122;s defiance of religious extremism in the country

By Agha Akbar, Muhammad Faran Bukhari and Farooq Tirmizi

t was shortly after sunset in Islamabad on January 4, 2011. Almost every liberal in Pakistan remembers exactly where they were that day, and that moment, when all illusions of security – and their sense of place within Pakistani society – came crashing down: the Governor of Punjab, Salmaan Taseer, was shot and killed by one of his own bodyguards, on grounds that he had the audacity to suggest that there may have been a miscarriage of justice against a woman accused of blasphemy. Shehryar Taseer remembers that day more clearly than just about anyone else: the man killed was his father, and the day was his 25th birthday. “I was with him [that day] in our house in Kohsar Market in Islamabad. Just 30 feet from my house, where I was sitting, on my birthday, my father was assassinated,” said Shehryar, in an interview with Profit. Before he was killed on that day, before he became a politically active Governor of the country’s largest province, and long before he gained his Twitter following, however, Salmaan Taseer was an icon in Corporate Pakistan, and the founder of a collection of businesses that were known to punch above their weight in terms of economic significance. The elder Taseer will indelibly be remembered for his political legacy, and justifiably so. But lost in the conversation about the shocking nature of his assassination is the reason behind the shock: he was a very wealthy man, and not even from the “wrong” ethnic or religious groups. Men like him are supposed to be immune from the slings and arrows of daily life in Pakistan, protected by the walls that their wealth affords them. Taseer had the added protection of being the governor. But in the end, none of it was enough. This is the story of how Salmaan

‘BUT I DID NOT DO THAT. BECAUSE I ALWAYS HAD A VERY ‘I AM GOING TO LIVE AND DIE IN PAKISTAN’ APPROACH. THOSE WHO WANT TO CHASE ME FROM HERE, I WILL CHASE THEM FROM HERE’ Shehryar Taseer Taseer acquired that wealth in the first place. And the story of what happened to that fortune after his assassination.

The poet’s son becomes a quant

he elder Taseer was born in 1944, and grew up in a multicultural, literary home. His father was Mohammad Deen Taseer (famously known as M.D. Taseer) and his mother was Christobel George, a British leftist activist who later changed her name to Bilqis. His mother’s sister was Alys, who was married to legendary poet Faiz Ahmed Faiz. Taseer’s father died in 1950 at the age of 47, when Taseer was only six years old. He was raised primarily by his mother and went to St Anthony’s School in Lahore, and then on to Government College Lahore (at each of these institutions, he was only a few years ahead of former Prime Minister Nawaz Sharif). Following his graduation from Government College, Taseer went off to London to study that most middle-class of subjects: accounting. He became a chartered accountant in England, and rose through the ranks of accounting firms within the UK enough

‘TO HAVE GONE FROM BEING THE PARTNER AT WHAT STARTED OUT AS A SMALL ACCOUNTING FIRM TO BEING THE OWNER OF AN EMPIRE THAT ENCOMPASSED SEVERAL PUBLICLY LISTED COMPANIES ACROSS A WIDE ARRAY OF INDUSTRIES IS AN ENTREPRENEURIAL RUN TO MARVEL’

to feel confident about starting his own accounting firm in the 1970s in Pakistan and the UAE. The firm he founded, Taseer Hadi, would partner and become a member of one of the largest accounting firms in the world, KPMG. KPMG Pakistan is still known as KPMG Taseer Hadi & Company. It was an opportune time to set up an accounting firm, since the Gulf Arab states were beginning to develop formal economic institutions, and thus would need accountants. Pakistan had an older established tradition of both accounting and corporate institutions, but the 1980s brought a revival of the need for such firms after a boom in private sector activity took off. By the early 1990s, Taseer felt confident enough to wade into other ventures. One of his earlier such ventures was Pace Pakistan, a residential and commercial real estate company established in 1992 and still listed on the Pakistan Stock Exchange. In 1994, he created First Capital Securities, a stock brokerage firm that was briefly affiliated with US brokerage firm Smith Barney. In 2001, he created Media Times, a company that now publishes two daily newspapers (the left-leaning English-language Daily Times and the Urdu-language Aaj Kal), two magazines (Sunday Times and TGIF) as well as two television channels, the business-focused Business Plus and the food-centric Zaiqa TFC. It was not until 2003, however, that Taseer created his biggest business: Woldcall Telecom, which was a cable television and broadband in-

COVER STORY

ternet services provider, and at one point was the largest such company in the country before the state-owned Pakistan Telecommunications Company (PTCL) awoke from its slumber and crushed all competition. To have gone from being the partner at what started out as a small accounting firm to being the owner of an empire that encompassed several publicly listed companies across a wide array of industries is an entrepreneurial run to marvel. At the time of his death, Shehryar Taseer estimates that his father’s net worth was around $800 million, easily making him one of the wealthiest men in Pakistan (and, really, anywhere in the world, come to think of it).

The empire at Salmaan’s death

large chunk of that money was no doubt from the sale of the family’s 60% stake in Worldcall, which was sold to Omantel in a transaction worth $210 million at the time it was executed in April 2008. Where that money was reinvested is not entirely certain, however, as Salmaan became Governor Punjab the next month, in May 2008, and appears to have largely stopped exercising direct control over any of the companies he owned. The Taseer empire since then, at least publicly, appears to have shrunk considerably, with just Media Times, Pace, and First Capital left as the publicly listed parts of the family’s businesses. The total market capitalization of the family’s major publicly listed companies (and not just the family’s share in those companies), as of the close of Friday’s trading on the Pakistan Stock Exchange, stands at Rs2.9 billion ($30 million). The Taseer family is likely still one of the wealthiest in Pakistan, but the publicly listed part of their wealth appears to have shrunk considerably. The reasons for this shrinkage are not sim-

Salmaan Taseer

‘CLIMBING OUT OF THE HOLE SOCIETY PUTS YOU IN FOR OPPOSING THE BLASPHEMY LAW TAKES A LONG TIME, APPARENTLY, BUT IF THE BUDDING RECOVERY OF THE TASEER FAMILY BUSINESSES IS ANY INDICATION, IT AT LEAST LOOKS LIKE IT MIGHT BE POSSIBLE’ ply that the company lost its founder. Shortly before his death, the governor’s businesses appeared, mostly, to be doing quite well, even in the years that he was governor and thus not fully devoting time to running his businesses, despite retaining the title and responsibilities of CEO of all of his major companies. Media Times, the newspaper and television business, appeared to be making significant traction with respect to revenue growth (although cash flow health did not always match sales growth). Revenues had grown to Rs500 million in the financial year ending June 30, 2010 (all Taseer companies end their financial years on June 30).

‘AT THE TIME OF HIS DEATH, SHEHRYAR TASEER ESTIMATES THAT HIS FATHER’S NET WORTH WAS AROUND $800 MILLION, EASILY MAKING HIM ONE OF THE WEALTHIEST MEN IN PAKISTAN (AND, REALLY, ANYWHERE IN THE WORLD, COME TO THINK OF IT)’ 22

This represented an average annualized growth rate of 34.6% since 2004. The group’s securities brokerage firm – First Capital – also had a remarkable run in years immediately preceding the governor’s assassination, with revenues rising by an average annual growth rate of 24.8% per year in the six years leading up to fiscal 2010. Most impressively for a financial services company, First Capital actually saw an increase in revenue in the years immediately following the global financial crisis of 2008, suggesting that the firm was remarkably resilient. The biggest of the group’s businesses by revenue was the real estate arm, Pace Pakistan. Pace was, at the time, one of the largest real estate developers in Pakistan, and for a long time, the only one that was publicly listed. Though it had a strong residential real estate arm that developed both houses as well as apartments, the bread and butter of the company was middle-tier shopping malls, which it developed in cities all across Pakistan. In the six years prior to Taseer’s

assassination, the company had been doing remarkably well, growing revenue by an astonishing 84.2% per year on average between fiscal 2004 and 2010. In the three years before Salmaan’s death, the company consistently registered revenues exceeding Rs1 billion.

The financial cost of opposing blasphemy?

ll of that progress came crashing down in 2011. The Taseer family paid a heavy price for Salmaan’s stand against the abuses of Pakistan’s blasphemy law (the governor had always made it clear that he opposes misuse of the law, not the law itself). And the price was not just in blood. Less than one month after Salmaan Taseer’s assassination, the Taliban kidnapped his son Shahbaz Taseer, and kept him imprisoned for the next five years, until 2016. That emotional anguish, by all accounts, was devastating

‘IT WAS NOT JUST THE MEN WITH THE GUNS WHO CAME FOR THE TASEERS. IT WAS THE POLITE UPPER AND MIDDLE CLASS PEOPLE WHO QUIETLY DECIDED TO TAKE THEIR BUSINESS ELSEWHERE. OVERNIGHT, THE TASEERS BECAME PARIAHS IN THEIR OWN HOME’ to the family, particularly to Shahbaz’s mother, Aamna, who had served as her late husband’s second-in-command on the boards and management committees of the family companies. And so, the task fell to young Shehryar Taseer to manage the businesses and keep the family financially afloat as they dealt with the emotional agony of the assassination and the kidnapping. As shaken as they were, Shehryar states that they never thought of just selling it all and leaving the country. “When my father died, when I liquidated, my group was worth, $800 million,” he said. “If I took a negative

‘MEN LIKE HIM ARE SUPPOSED TO BE IMMUNE FROM THE SLINGS AND ARROWS OF DAILY LIFE IN PAKISTAN, PROTECTED BY THE WALLS THAT THEIR WEALTH AFFORDS THEM. TASEER HAD THE ADDED PROTECTION OF BEING THE GOVERNOR. BUT IN THE END, NONE OF IT WAS ENOUGH.’

assessment of 30%, I would say I would easily walk away with $500 million. If I split it between seven family members – my mother and six children – we would all walk away with around $90 million each. That will see you through life. But I did not do that. Because I always had a very ‘I am going to live and die in Pakistan’ approach. Those who want to chase me from here, I will chase them from here.” That decision to stay, however, came with costs. It soon became clear that the ideology that led people to murder the governor was far more widespread than his assassin (as if the pictures from the trial and subsequent funeral of the assassin were not enough proof already). Every single one of the Taseers’ companies saw a sudden and sharp drop in revenue in 2011, and continued to see tremendous declines in revenue for the following several years before eventually stabilizing. Here are the numbers: in the six

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years prior to the governor’s death, Media Times revenues grew at 34.6% per year; in the years since then, revenue growth has actually swung negative to -3.8%. With the paper facing increasing competition ‘Sunday Magazine’, their weekly fashion magazine, became an important revenue contributor. What began predominantly as a magazine carrying pictures of the who’s who of the week’s social events and parties started getting the attention of retailers looking for advertising space that was cheaper than the newspaper’s prime ad space. The industry of weekly magazines that was essentially founded by Daily Times ‘Sunday’ has now become a cash cow for other publications as well all of whom have ridden the retail boom through their respective weekly’s. It was a lucky break for the fledgling media group coming just at the right time. For First Capital, the numbers are 24.8% per year in the six years prior to the assassination, and -6.7% per year

Shehrbano Taseer since then. And for Pace Pakistan, the numbers are most dramatic: that 84.2% per year annual growth rate swung to a

‘SHORTLY BEFORE HIS DEATH, THE GOVERNOR’S BUSINESSES APPEARED, MOSTLY, TO BE DOING QUITE WELL, EVEN IN THE YEARS THAT HE WAS GOVERNOR AND THUS NOT FULLY DEVOTING TIME TO RUNNING HIS BUSINESSES, DESPITE RETAINING THE TITLE AND RESPONSIBILITIES OF CEO OF ALL OF HIS MAJOR COMPANIES’ 24

-8.8% per year annual contraction since the murder. It was not just the men with the guns who came for the Taseers. It was the polite upper and middle class people who quietly decided to take their business elsewhere. Overnight, the Taseers became pariahs in their own home. For some of these businesses, it may be possible to explain away the results for other reasons. Daily Times, for instance, saw a decline in revenue right when Pakistan Today and The Express Tribune were beginning to

pick up steam as competing English-language newspapers in Pakistan. And First Capital Equities, by virtue of its exposure to the capital markets, is by definition in a volatile industry that can cause wild swings in revenues. But Pace Pakistan struggled when real estate in Punjab was going through a boom. The business found both credit and customers hard to come by that year, and actually ended up with negative revenues in 2011 as it was forced to cancel orders from customers who were not paying up their requisite installments and return their money. And it was not even the people who bought things from the Taseer-owned businesses. Even companies whom the family’s businesses paid money to perform services started to refuse to do business with the company. “Our auditors didn’t want to audit for us anymore, because they had mullahs inside their firms who said that we don’t believe in khatm-e-nabuwat (finality of Prophethood),” said Shehryar. “What does saying anything about the blasphemy law have anything to do with khatm-enaboowat? But people said such stuff about us and, at that time, staying alive was a very big achievement.” That collapse in revenues, at least part of which may have been the result of the social boycott of the family, in turn caused other problems. The company began having trouble paying off its debts, since lower revenues meant lower cash flows available to make debt repayments. “I had Rs18 billion in debt that I owed to the banks, I had no income, all my companies were in operational loss, I had no inheritance, no cash flows, all my companies were in operational loss in my father’s life. But I did not let anything shut down,” said Shehryar. The debt repayments alone would not have been a problem if the family had been able to turn to their co-investors and longtime business partners for capital injections in businesses that had, until recently, been strong money spinners. But the social boycott – this one perhaps unintended – extended to people who had gladly been willing to

Salmaan Taseer Family do business before. “Every investor in my group turned away and left, everyone who was associated with my business group wanted to disassociate themselves because they were scared that they will get killed,” claimed Shehryar, offering a rational explanation.

A dispute over inheritance

t was not just outsiders who were causing problems for the Taseers, however. The family was split even among themselves, in large part over the question of the inheritance, particularly the question of who should get the title of publisher of Daily Times, an asset that the family felt a lot of emotional attachment to. Under Pakistani law, while the ownership of a newspaper can belong to any individual or any form of corporation, the title of publisher, and ownership of the name and masthead of a daily newspaper, can only be owned by an individual, and not a company. This has the effect of making the act of publishing a newspaper more personally liable than any other form of business, but it also creates problems at the time of inheritance: Salmaan Taseer’s shares in Media Times Ltd can be split up between his hiers in

accordance with his will or inheritance law, but the title of publisher, and thus ownership of the newspaper’s brand, can only go to an individual, which complicates the process of deciding who gets to inherit the title. Given the fact that Daily Times is published from multiple cities, and that the publisher title is separate for each city, the problem is not insoluble, but it does require consensus among the heirs. This is where the heart of the dispute starts. Salmaan Taseer has seven children, six of whom are Pakistani citizens: Shaan, Sara, and Sanam are the children of his first wife Yasmeen Sehgal, and Shahbaz, Shehryar, and Shehrbano are the children of his second wife Aamna. The seventh child, Aatish, is the son of Tavleen Singh, an Indian journalist with whom Salmaan had a brief relationship. After the governor’s death, there emerged significant differences between the children of his two wives. While family matters are rarely simple, the legal dispute at least pits Yasmeen’s children against Aamna’s. More specifically, Sara claims that her signature was forged on a document that purportedly shows all siblings signing over the right to claim the Daily Times publisher title to Sheh-

COVER STORY

ryar. In addition to filing claims against her brother in court, Sara has waged a very public battle on social media, attempting to draw attention not just to what she feels is unjust distribution of family resources, but also what she feels is mismanagement of the newspaper on the part of Shehryar. For his part, Shehryar states that Media Times as a business faces external challenges that would be difficult to control for just about anyone. In recent years, Daily Times has received flak on social media for not paying the salaries of its staff on time, and Shehryar in particular has come under personal criticism for those delays (even though the salary delays were at their peak in 2009-2010). Shehryar acknowledges the frustration of his staff, but points out that the matter is not entirely in his control. He focuses on the role of advertising agencies and media buying houses in creating cash flow problems for newspapers and other media companies, laying the blame squarely on the company Midas, one of the largest media buying houses in Pakistan. “These advertising agencies will kill us all,” he said. “The government [largest advertiser in Pakistani newspapers] has to pay me Rs280 million and the government says that it is payable by Midas. Midas says that the government has to give it… And our total market payable is Rs20 million. In this, I have endured such abuses on staff [salary] payments. This happened with everyone in the industry. This circular debt was simply created because of Midas. They would bag government money, eat it up, and not release it to the staff. It’s the end of the month, and the staff want their salaries. Midas give us checks, the checks bounce, and the owner of Midas is suddenly in London. He is in jail, and even if the check bounces what can I do? He is already in jail.” Shehryar also came under criticism for the firing of the Florida-based left-leaning columnist Mohammad Taqi (who tweets under the Twitter handle “Mazdaki”, the Farsi word roughly equivalent to Marxist). “A lot of people abused me and

Taseer Family asked why I fired Taqi,” said Shehryar. “He was turning my paper into Balochistan Times. I am a liberal guy, there are a lot of things that I oppose the army on, but stop making every editorial about Balochistan. I started to ask Rashid Rehman [the editor at the time] to please get people to contribute on other things as well. Anyways in the end it wasn’t working out, and we had to part ways, and he resigned.” Nonetheless, Shehryar defends his liberal credentials, pointing out that he had a falling out with Aseefa and Bakhtawar Bhutto Zardari, the daughters of former Prime Minister Benazir Bhutto, over the issue of the ostensibly left-leaning Pakistan Peoples Party seeking an electoral alliance with the hard-right Sunni Ittehad Council. The falling out lasted one year, and was triggered by Shehryar tweeting about a meeting between PPP leaders and the council, opining: “There is no Left left in Pakistan.”

Comeback in the offing?

lbeit Media Times’ broadcast business struggling, for its part, Daily Times appears to be in good hands under Raza Rumi, a left-leaning former civil servant turned journalist who himself was attacked by the Taliban in 2014 and had to flee to the United States for fear of his life. And both Pace Pakistan and First Capital Equities appear to have had significant revenue growth over the past couple of years, though neither company is anywhere close to coming back to the levels of revenues they saw when Salmaan Taseer was alive. Climbing out of the hole society puts you in for opposing the blasphemy law takes a long time, apparently, but if the budding recovery of the Taseer family businesses is any indication, it at least looks like it might be possible.

COVER STORY

Ms Fareena Mazhar Executive Director General, BoI

Q & A TAKING

PAKISTAN A HIGHER ON THE WORLD BANK LADDER

In the realm of creating an environment for ease of doing business, Ms Fareena Mazhar is hoping that BoI would find an ally in the coming PTI government 28

By Afia Salam

s Pakistan stands poised to be taken over by the Pakistan Tehreek-e-Insaf (PTI)-led government in wake of the results of elections 2018, one of the key question marks is how is the new government going to handle a vulnerable and under-debt economy. Especially when the PTI has promised to create some two million jobs per year in each of its five years in office and Pakistanâ&#x20AC;&#x2122;s workforce is half of its total population â&#x20AC;&#x201C; a staggering 103.5 million. To achieve this objective, Pakistan will have to improve its investment climate and facilitate the business sector, including agri-business which will in turn help the

growth of not just the industrial but also the agriculture sector. This is where the Doing Business Reforms step in. The PTI’s Prime Minister-designate, Imran Khan, in his victory speech, mentioned how, if they come into power, his new government aims at improving the investment climate, and also mentioned the magic words – Ease of Doing Business. World Bank’s flagship annual report, the “Doing Business Report”, measures what over 190 countries are doing to create an environment suitable for business. It measures the ranking, comparing how fast one country’s business environment is reforming as compared to the other 189, whereas the Distance to Frontier (DTF) methodology helps measure the performance of a country over a period of one year over various indicators. Pakistan’s ranking has been less than satisfactory, having deteriorated to 147 in 2017 from 144 in 2016. However, 147 was a number that seemed to have shaken up the authorities and Pakistan’s relevant government agencies, with the help of technical support from the World Bank, has accelerated Doing Business (DB) Reforms. The realization became actionable and was incorporated in the Vision 2025 of Planning Commission of Pakistan as its Step (Pillar) V to take steps to pull Pakistan up to at least number 50 in the World Bank’s Ease of Doing Business ranking. The 10 indicators being worked on for Pakistan currently are: starting a business; dealing with construction permits; getting electricity; registering property; getting credit; protecting minority investors; paying taxes; trading across borders; enforcing contracts and resolving insolvency. With the Federal Board of Investment (BoI) at the helm of these efforts, having been declared the secretariat for the monitoring of DB Reforms, and relevant departments working alongside in Sindh and Punjab, the DB reforms seem to have gained the much needed impetus. In an exclusive interview with Profit, Fareena Mazhar, Executive Director General at BoI, gives a ringside view of the programme to better the business environment. Ms Mazhar leads the DB reforms initiatives. She has been working in the tax department for 32 years now, with around

10 years on deputation in different departments such as the Ministry of Commerce, PEMRA, Prime Minister’s Secretariat, and currently the Board of Investment. In Pakistan’s bureaucratic set-up, a woman having reached this high rank, that too in the field of finance, Ms Mazhar shares that her search for meaning that was a rough road as she refused to tread on the familiar path that would have led her through medical school. Settling on CSS as Plan B, at 21 years of age she embarked on a journey that took her through Inland Revenue Service, marriage with a person in whom she found a good friend, an MBA degree, motherhood of three accomplished children, and the joy of a grandson. In triggering, implementing and monitoring reforms, the role of the top management as a watchdog and arbiter is very important. With the experience under her belt, Ms Mazhar is driving a team, which has a difficult but important task at hand.

‘IMRAN KHAN HAS TALKED OF DB REFORMS TO ATTRACT INVESTMENT IN THE COUNTRY AS ONE OF THE TOP PRIORITY AREAS FOR HIS GOVERNMENT. WE ARE HOPING THAT THE FOCUS OF THE NEXT GOVERNMENT WILL BE TO IMPROVE BUSINESS CLIMATE TO FACILITATE BUSINESSES, SETTING UP OF INDUSTRIES, AND FACILITATE THE SME SECTOR’

Profit: Why was there a need for the separate EoDB management infrastructure? Fareena Mazhar: EODB ranking was till a few years back not given any importance in Pakistan. But we realized that the world was viewing us through this lens. There are about 27 different interdependent agencies/ departments, 7 at the federal level and 20 at the provincial level, which are relevant in the context of the 10 business indicators against which 190 countries in the world are evaluated. There was a dire need to have coordinated efforts to achieve the desired objectives. There was no one single agency dealing with EoDB initiatives. It was very important for the reforms to be ‘institutionalized’ at one place. Also, it was felt that unless there was ownership from the top management, the desired results would be difficult to achieve. The current set up where the prime minister is leading the steering committee on EoDB was needed to give a direction and a cohesive plan to all the agencies, both at the national and the subnational level. This also made monitoring of their work easier.

Fareena Mazhar, Executive Director General, BoI

Profit: Comparisons may be odious, but how would you compare the progress among provinces?

FM: The scope of our current work is limited to two provinces - Punjab and Sindh – and they are at par, but we intend to expand the scope of our work to KP and Balochistan as well. With this initiative, efforts gained momentum; relevant agencies are reforming regulations related to business startups, construction permits, land registration and contract enforcement. Sindh’s performance is very important as it [Karachi] has a 65% weightage in the total results towards our ranking, while Punjab [Lahore] accounts for 35%. I have noticed a very healthy competition between Punjab and Sindh in this regard, and the results have been excellent. Profit: What have been the roadblocks? FM: In Pakistan, commercial risks are not very high but rewards are. However requirements of obtaining permits and clearances from different government agencies at national and local levels were a cause of delay and frustration to investors. Similarly, foreign firms couldn’t borrow more than their equity capital etc. Other deficiencies in most of the infrastructure

BUSINESS

services and multiplicity of taxes were some of the challenges and roadblocks, which I think were hampering the investment inflows. We have tried to remove the bottlenecks through effective coordination and streamlining the administrative procedures and introducing automation in each business area. The business environment in Pakistan has improved but the slow implementation of approved policies and weak check and balance systems are yet another set of problems that reflect poor management and governance at various level. Profit: How does the investment and business climate facilitation work? FM: Many researches have pointed out two things that can improve a country’s economy and give it a competitive edge. First is the business environment and second is the infrastructure. An enabling and conducive business environment is put in place when government facilitates the businesses. So an improved business environment is expected to yield more local and foreign investment. The aim is to make our country competitive by giving investors an excellent business environment. Profit: Please share your experience and involvement in the project? FM: I have an experience of serving in different government departments including FBR and Ministry of Commerce. This gives me an advantage of having a background knowledge and insight in these issues. I have actively taken up the coordination and communication work and have visited every implementing agency and attended every meeting to monitor the performance at federal and provincial levels. Profit: What were the main bottlenecks identified that you think led to Pakistan’s low ranking till now? FM: The main bottleneck was to make these departments realize the importance of this initiative and to build a consensus that these tasks were

important, not only in the context of changing our perception to attract investment but also about bringing about a real change in the business climate. This would not only improve our ranking in the EoDB index, but will also facilitate the businesses, especially small and medium-sized Enterprises (SMEs). I appreciate all agencies for their support and tireless efforts. The biggest challenge however is to plan ahead for the activities of the next year to keep the momentum going. Profit: What steps have been taken to propel the EoDB Reforms? FM: The main step is the constitution of a steering committee headed by the prime minister to introduce and take some urgent steps with a view to improving Pakistan’s investment climate and its international creditworthiness. Similarly, working groups at the provincial levels led by provincial chief secretaries have proven to be very fruitful. We now have a formal reporting structure, coordinated with regular meeting and monitored by an online dashboard along with websites open to public to look at our work. Profit: How about the assessment of the success of these reforms? Is there a visible difference in operations? FM: We can measure the performance of our first drive; we implemented 87% of the reforms. Coordination has improved by making provincial working groups. The involvement of the top leadership at various levels has ensured a healthy competition between different agencies as they want to be the one with the most reforms. I am quite confident that these reforms will facilitate business startup, improve security of title by streamlining land and property procedures, improve access to credit through expanding availability of credit information and enhancing secured lending framework, improve contract enforcement through enhancing judicial case management and capacity building of

‘THERE WAS NO ONE SINGLE AGENCY DEALING WITH EODB INITIATIVES. IT WAS VERY IMPORTANT FOR THE REFORMS TO BE ‘INSTITUTIONALIZED’ AT ONE PLACE’ 30

judiciary, facilitate cross border trade and improve tax collection through enhanced tax administration. We can see a lot of difference in each area of business cycle. We follow our own time line, a year-long process where we push out the reforms, make sure that they are used by a maximum number of customers, and then we report it to the World bank to make an independent assessment. The first 100-day Sprint 1 yielded excellent results. Setting up shortterm targets that expand into an annual plan is a good strategy. Q: Are the beneficiaries of these reforms aware of the new measures and are they taking advantage in adequate numbers? FM: We have gone into a rigorous communication drive on all forums, including both social media and print media. However, it will take a while before the audience of reforms experience a change in service delivery and recognize the efforts of the government. Our communication strategy is two-pronged and covers communication within the government departments as well as with the general public and direct beneficiaries of reforms. We would like to extend the outreach to all companies already operating and also those interested in starting a business, including women. Q: Do you see the new government also coming on board to this agenda? FM: Improving the business climate is a national agenda and I am sure the new government will keep it as a priority area. For countries like Pakistan improved state-business relations and better investment climate helps businesses to thrive in local and international markets. Industrial development through investment is the need of the day for Pakistan to address poverty and unemployment problems, so it will remain on top of agenda for every government. Imran Khan has talked of DB Reforms to attract investment in the country as one of the top priority areas for his government. We are hoping that the focus of the next government will be to improve business climate to facilitate businesses, setting up of industries, and facilitate the SME sector.

BUSINESS

EZBUY.COM BRINGING THE WORLD TO PAKISTANI CONSUMERS And delivering it at their doorstep

By Arshad Hussain ith the advent of social media – like Facebook, Twitter and Instagram – the online shopping has picked up in every Pakistani

city and town. A wide range of products – from cosmetics to fashion accessories to home textile products and clothing,

from jewelry to laptops, cell phones and electronic goods – is only a click away. A new vehicle in the form of a shopping portal is ezbuy.com. Employing the social media massively as a promotional tool to expand its outreach to even far flung areas, Chinese, Thai, and Singaporean or Pakistani products are all available on ezbuy.com, for online purchases with minimum delivery charges. “Our main agenda is to provide

great value quality products to Pakistanis at their doorstep,” said Vincent Xue Bin, Co-founder and Chief Strategy Officer at ezbuy.com. “We would have three platforms; first, ezbuy cross border and local products; second, Haute Shop fashion products, while, the third, B2B serves businesses Vincent Xue Bin, who is also shareholder of ezbuy Holdings Limited in Singapore, have signed a joint-venture with Pakistani entrepreneurs led by

Kamran Shaukat, with a vast experience in retail and online shopping. He has worked at different places including Walmart (China), Shell (Singapore), McDonald’s (Malaysia, USA and Pakistan) and many other places and runs many small businesses. Talking to Profit, he said, “one of my friends in Walmart (China) suggested that I embark on e-business in Pakistan, [with a view to offer] unique, innovative, unavailable and high-demand products,” said Kamran. Being friends with Vincent Xue Bin, already engaged in similar business in Singapore, gave him a legup. “So, we joined hands to bring ezbuy to Pakistan starting with the largest product range of over 3 million products on offer for Pakistani consumers online, with delivery within 12 to 30 days of order.”

Launch in Pakistan

“W

e went live on August 1, 2018 in Pakistan and since the launch we have gotten an overwhelming response on this website,” said Kamran. Having launched ezbuy at the start of August, and Haute Shop 10 days later, our business service vertical is to open shop in October. “China is manufacturing good quality products at great value rates compared to other countries including Pakistan and we can deliver it to the Pakistani people, schools, universities, hospitals at minimum delivery charges,” said Vincent. “Our trust with the Pakistani buyers is our main asset,” said Vincent with a smiling face. As one of the fastest growing online retail companies in SE Asia (Singapore, Malaysia, Thailand and Indonesia), ezbuy offers an unparalleled start up learning experience, said he. Founded in 2010 by a group of aspiring entrepreneurs, ezbuy had a single objective: to bring quality products in a convenient way to the locals via our platform, he added. As of today, ezbuy has more than 3 million customers in Singapore, Malaysia, Indonesia and Thailand. We have also brought millions of quality

‘OUR MAIN AGENDA IS TO PROVIDE GREAT VALUE QUALITY PRODUCTS TO PAKISTANIS AT THEIR DOORSTEP’ Vincent Xue Bin, Co-founder and Chief Strategy Officer, ezbuy.com products globally from China, the USA, Taiwan and Korea for our customers, he claimed. Maintaining focus on products demand in Pakistan, said Vincent, we strive towards service excellence and keep on developing new services that better suit Pakistani customers. That is why we have our ezbuy Prime service and expanded our operations from China to the USA, Taiwan, Korea and now to Pakistan. Last year, online shopping in Pakistan stood at $180 million, with the ongoing year potential projected to be twice the size – $350 million, Kamran claimed. Pakistan is a huge market after India which is rapidly growing in online purchases and is expected to reach $5 billion by 2025. Many companies like Ali Baba and others are coming to Pakistan to get their slice of the profits in online shopping. Pakistani is a huge market for us, added Kamran. “We are expecting the new government to support the business community for it cannot be developed without it. Pakistan’s economy is going in right direction and the Pak-China governments would have more cooperation on CPEC projects.”

Dealing not in dollars but yuan

he company would, said Kamran, be dealing in the Chinese currency – allowed by the State Bank and the government of Pakistan

‘A WIDE RANGE OF PRODUCTS – FROM COSMETICS TO FASHION ACCESSORIES TO HOME TEXTILE PRODUCTS AND CLOTHING, FROM JEWELRY TO LAPTOPS, CELL PHONES AND ELECTRONIC GOODS – IS ONLY A CLICK AWAY’

to ease pressure on the dollar. “Initially, we have put over 3 million products on our website – making it so far the biggest in Pakistan,” he said. Now owned by Alibaba, Daraz.pk has one million to 1.5 million products available on-line. “The consumers would have to book online and our company after the quality check, packing, would deliver it through air courier within 1012 days and by ship in 20-25 days. We are planning to sell our products directly to the customers, retailers, schools, colleges, universities and other educational centers, hospitals and companies etc on credit card, cash on delivery, and other banking channels’ used in the country. Over a question regarding the Pakistani market, he said, “We need to educate people through our website and also social media to get products delivered at their doorstep.” The company has hired over 45 people in Pakistan – and the process continues. Overall the company has around 1,000 people on its payroll, mostly in the Far East, in China, Singapore, Malaysia, and Thailand. “We have made sizeable initial investment in Pakistan, with an intent to post profits within three years. And the response to the website in the country over the last one week has been indeed tremendous”, claimed he. Pakistan’s e-commerce may cross $1 billion-mark by 2020, as predicted by experts – a year earlier than the previous projections citing the milestone to be crossed in 2020-21. The central bank’ six-month data suggested this to be a positive development.

E-COMMERCE

IMRAN KHAN’S FIRST TEST:

PAKISTAN’S TROUBLED ECONOMY Pakistani economists say that Imran Khan, once he becomes prime minister, will have no choice but to ask the International Monetary Fund for a bailout By Jeffrey Gettleman

he economic mess awaiting Pakistan’s new leader could take the thrill out of his election victory. The country’s current account deficit, a broad measure of the imbalance between imports and exports, has soared to an alarming $18 billion. Foreign currency reserves would cover less than two months of imports. The Pakistani rupee is shaky, tax collection is scandalously low (last

year, in a country of 200 million, fewer than a million people paid any taxes) and Pakistan was recently returned to an international “gray list” for failing to curb terrorism financing, making foreign transactions more complicated and expensive. So what’s a new prime minister to do? Imran Khan, the former cricket player whose political party won Pakistan’s disputed election late last month, vowed to tackle the distressed economy the moment he ascends to the premiership, which is expected to

happen in the coming days. But the task will be made more difficult because Pakistan has sandwiched itself between two financial powers: China, from which it has borrowed heavily, and the Western-dominated International Monetary Fund, which might be its short-term savior. Pakistan has taken out billions in Chinese loans and run up a huge import tab bringing in bulldozers, train carriages and building materials as part of a Chinese-funded master plan to revamp its ports, roads and railways.

A Chinese ship at Gwadar Port in Pakistan. Pakistan has borrowed billions from China to develop its infrastructure. That $62 billion plan, known as the China-Pakistan Economic Corridor, has been celebrated by both countries as a long-term investment that will increase trade. It is a cornerstone of a global infrastructure initiative that China calls Belt and Road. Economists agree that for Pakistan’s economy to develop beyond rice and textiles, its main exports, it needs new infrastructure — a lot of it. But in the meantime, the Chinese plan is pushing Pakistan’s deficits to unsustainable levels. The country’s debt is rising rapidly and it is running out of hard currency to pay its bills. Pakistani economists say that Mr. Khan’s team will have no choice but to beg the monetary fund for a multibillion-dollar bailout, one of more than a dozen that Pakistan has received since the late 1980s. That prospect doesn’t make the United States super happy. “Make no mistake,” Secretary of State Mike Pompeo said this week. “We

will be watching what the I.M.F. does.” Mr. Pompeo objected to the idea of money from the fund being used by Pakistan to pay back Chinese loans. “There’s no rationale for IMF tax dollars — and associated with that American dollars that are part of the IMF funding — for those to go to bail out Chinese bondholders or China itself,” he said. Pakistan’s economy, it seems, has become yet another battlefield between the United States and China. As the largest contributor to the fund, the United States has considerable sway over its decisions. And though the United States and Pakistan enjoyed close ties during the Cold War, the relationship has soured. President Trump froze aid to Pakistan at the beginning of the year, citing frustration with its tolerance of extremist groups that operate within its borders. Economists say that if the United States tried to block a potential bailout, Mr. Khan’s fledging government could face a major crisis. It is unclear what the United States’ actual position is, and the fund would probably restrict

Pakistan from redirecting bailout money to China. Several analysts said that Mr. Pompeo’s remarks were more an expression of frustration than a definitive statement. Despite its troubles, last year the Pakistani economy grew at more than 5 percent, faster than most Western economies. But things could change quickly if Mr. Khan’s government doesn’t get a rescue package soon, experts said. Among the concerns are soaring inflation, bank runs, capital flight and new import controls that would make it more difficult to buy items like computers and spare auto parts. “The situation is certainly not good,” said Mohammed Sohail, chief executive of Topline Management, a brokerage firm based in Karachi, the country’s economic capital. “We could see growth tumbling, interest rates increasing, inflation.” The trick for Mr. Khan will be managing expectations. He is a Pakistani success story: a legendary athlete who is good-looking, wealthy and connected to the global elite (he once played

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matchmaker for Princess Diana). His election could open new doors for Pakistan. But how he handles the cold, hard numbers of Pakistan’s up-and-down economy, more than anything else, will determine his success. Pakistan’s financial markets seem to like him. As soon as it was clear that Mr. Khan’s party was winning the July 25 election, the rupee gained value and Pakistani stocks surged. Mr. Pompeo’s remarks had the opposite effecton both. This past week, Mr. Khan has continued his quest to win over enough independent lawmakers and those from smaller parties to form a coalition government. The election was seen as heavily influenced by military and intelligence officials, who analysts say favored Mr. Khan and sidelined his competition. But his supporters see him as a figure of hope, having defeated two of the country’s powerful political dynasties based partly on his promises of a less corrupt and more equitable society. In his victory speech, Mr. Khan said he wanted to turn Pakistan into an Islamic welfare state. That is going to be hard to deliver if Pakistan goes hat in hand to the monetary fund, as many expect. Considered the lender of last resort, it can be a stern taskmaster. In return for lending Pakistan upward of $10 billion, the fund would most likely require more fiscal disci-

pline. That could mean Pakistan would have to reduce public spending and increase the amount of taxes it collects. Both could be a drag on growth and are not exactly the moves a populist prime minister would like to make during his first days in office. Pakistani economists say Mr. Khan faces a tightrope in trying to reconcile the fund’s demands with the goals of China’s infrastructure plans. “These are our two masters,” said Turab Hussain, an economics professor at the Lahore University of Management Sciences. “How do you serve both?”

Though China is a member of the monetary fund and one of its biggest contributors, it has a different philosophy when making its own loans. Getting paid back is not its only, or maybe even primary, goal. As it seeks new markets for its construction companies and new pathways to ship its goods, China is financing ambitious infrastructure projects across Central and South Asia. Beijing also views these projects as a way to project its power and secure allies. The goal of the monetary fund, by contrast, is to stabilize distressed economies and help countries avoid unsustainable financial imbalances. It structures loans with strict conditions to increase the chances the country will clean up its finances and be able to pay back its loans. While Chinese loans don’t have the same strings attached, they still have strings. In Pakistan, much of the profit from new power plants and roads goes straight back to Chinese companies. And as China showed in Sri Lanka, it can be a hard-knuckled debt collector. When Sri Lanka couldn’t pay back the money it had borrowed, China snatched one of its biggest ports. “Pakistan is clearly falling to the China side,” said Sian Fenner, lead Asia economist for Oxford Economics, a global research firm. Even with a bailout from the monetary fund, she added, “I don’t see that changing.” –Courtesy Financial Times

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By Rizwan Ghani

he local scene i.e. Packaging sector in Pakistan is as chaotic, expanding, directionless and mostly undocumented as all other (or majority of) businesses in our country. Directionless spread, ‘follow the trail blazers’ brashness, no thinking or planning, no synergy or sector acumen, no experience or compatibility, it is fast turning into an abused sector in the country.

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This in turn, has created a ‘bonanza’ reflected in ‘annual clearance sales’ for the end-user of packaging materials. It is rumoured that some FMCG MNCs have been known to change their ‘global fairness practices’ to take unashamed advantage of the frenzied situation and add to their already burgeoning bottom lines. Packaging sector is considered to be an ‘invisible’ industry, with a minimal knowledge and understanding by entrepreneurs, investors and people in

general (I had never looked at packaging closely until the time I became a part of this industry). Since the inception of Pakistan, till date, there are only three public limited packaging companies, the last entrant, went for an IPO only last year. There is one new entrant, putting up a plant in the north, which may also be a part of a public limited company, making a total of four till date. There is not a single MNC packaging company, worth its name in these parts. This is very odd

in a country with close to 200 million souls and a young, aware and demanding population. Why is it like that?

The vexatious unorganised sector

he industry is a blend of a few top-end technology savvy companies followed by a growing lot of smart, knowledgeable and wealthy players and then you have the last tier, a mammoth swarm of lowkey, medium to small operators who have grown in numbers remarkably but technology and management wise operate in the 1960s era. In Pakistan, it is indeed quite difficult in to find reliable industrial statistics and data. And the industry does not have an organized body for a collective voice. According to estimates, the organized packaging sector is only 45% while the remaining 55% remains unorganized. The latter operates under the radar, without any documentation, with unmarked factories and all-cash transactions. These low-end entities cater to a major segment of industries, mostly food and beverages, tobacco, biscuit, confectionery and tea. Very interestingly, there is even a whole segment of low-end packaging converters catering to ‘Naswar’ (powdered tobacco snuff) and ‘Chalia’ (betel-nut shavings). In almost all cases the users of packaging materials from these suppliers also operate in the unorganised and undocumented sector. Packaging is a difficult business and the margins are low, it is a game of volumes, supply chain efficiencies and operational excellence. Over time the volumes are reducing, putting the latter two under stress. Being a capital-intensive sector, the initial set up cost is quite high. Good European hardware is expensive, manpower required for running the operations is highly skilled and therefore also expensive. The operation is technologically highly complex, imported raw material content is high, varying between 20%

‘THE INDUSTRY IS A BLEND OF A FEW-TOP END, TECHNOLOGY SAVVY COMPANIES FOLLOWED BY A GROWING LOT OF SMART, KNOWLEDGEABLE AND WEALTHY PLAYERS AND THEN YOU HAVE THE LAST TIER, A MAMMOTH SWARM OF LOW-KEY, MEDIUM TO SMALL OPERATORS’ to 80% for different lines of packaging, putting additional burden on capital requirement. Market credit is strikingly high, another very expensive consideration to keep in mind. By the time the operations enter the green zone, it is again time to invest for BMR and capacity expansion. It quite a complex business with its unique oddities, compounded by the local B2B intricacies. One of the major ironies of this

‘GOOD EUROPEAN HARDWARE IS EXPENSIVE, MANPOWER REQUIRED FOR RUNNING THE OPERATIONS IS HIGHLY SKILLED AND THEREFORE ALSO EXPENSIVE’ sector is that most of the existing players and the ‘would be’ new entrants, especially the organized sector players, focus on a couple of wellknown, mostly large MNCs for their business and profits. This is either quite daring on their part, taking on a very challenging target or their business mapping and plan is just not right. Packaging suppliers expect to be treated fairly, professionally, on merit and most important, (particularly in local context) paid on

‘ONE OF THE MAJOR IRONIES OF THIS SECTOR IS THAT MOST OF THE EXISTING PLAYERS AND THE ‘WOULD BE’ NEW ENTRANTS, ESPECIALLY THE ORGANIZED SECTOR PLAYERS, FOCUS ON A COUPLE OF WELL-KNOWN, MOSTLY LARGE MNCS FOR THEIR BUSINESS AND PROFITS’ 40

time or within reasonable time. Unfortunately, one can count on fingers, the local and multinationals that fall in this category. This is giving these FMCG giants an undue advantage over packaging suppliers, leading to the exploitation, price wars, undercutting and unscrupulous practices, including an enlargement of the grey economy.

Healthy double-digit growth

he sector’s estimated organic growth is a healthy 10-11%, but the supply is outstripping the demand. Capacity expansions and new players entering the sector are creating an over-capacity to a tune of 15-20%, raising a very pertinent question as to why is there so much interest in this particular industry? The wisdom behind some of the investments made in the past or planned/under process are difficult to understand. The general interest and enthusiasm by investors in this sector is encouraging and converting it into a vibrant sector. The investment in technology is very impressive, most of the upcoming investments carry the latest brand new top of the line European hardware, custom-built factories, very expensive ERP systems, certainly a thriving sector with all the latest, bells, whistles and gadgets. So back to our question, why is there so much interest in this sector? I will say that the opening bell, goes to the pioneers in this sector mainly for two reasons. The small number of these pioneers in this sector players not only generated margins which were uncomfortably high but also bred arrogance and an attitude putting off buyers. Secondly sluggishness to invest aggressively as per the market needs and deny ‘opportunity gaps’ for others to fill, was lacking. This unusual success streak caught the attention of investors, probably re-enforced by the unhappy buyers, coaxing

and supporting them with promises to venture into this area, causing the first ripple and with low capital cost, a booming FMCG sector, especially food, eventually turned it into a tidal wave. The way this sector is booming is because of the following misconceptions. Some very large consumers of packaging materials, i.e. match, laundry soap, oil and ghee, etc. erroneously assume that a substantial packaging spend can be saved by an in-house packaging unit and on top of that there is money to be made as well by supplying excess capacity to the market. It also helps to conceal real turnover of the company, keeping the magnitude of the operations under wraps from the authorities. In majority of the cases this inhouse converter discovers that packaging operations is a different ball game altogether. Quality of packaging is the first casualty of an in-house process and actual cost saving is a myth, with many cost heads not being accounted for in a hybrid setup. Running an alien operation and selling excess capacity in the market is another illusion, which looks very attractive on papers but very complex and unfamiliar in reality. Mostly these initiatives end up with a lot of compromises,

‘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’ diversion of core focus and splitting of resources, which focused and agile companies can live without. Packaging is definitely not a ‘me too’ business, but some success stories, growth and margins (in the past) of the top few, continue to suck in investors, mostly with utterly incompatible background, in this sector. Parking black money in is another noteworthy reason for such chaotic growth. I know some packaging companies, offering ludicrously low prices, sometimes lower than the raw material cost of a reasonable quality packaging materials – incomprehensible to say the least. Only two reasons can explain away this phenomenon: either one is a fool or there is some ulterior motive

behind it. Some of their business plans do not make a lot of sense either. Logistics, proximity to the source of raw materials and buyers, availability of suitable manpower close by to run the plant, sales offices with appropriate hardware and software to facilitate the ‘speed to market’. These are the success factors which will determine the profitability and viability of these setups.

Intrinsic advantage:

ackaging is not going to go away any time soon, its importance and use will grow, not only locally but worldwide. As

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the resources become scarcer, more and more packaging will be required to preserve, ship, transport, store, enhance shelf lives and feed the masses, adding to comfort in lives of people. Even the Damocles’ sword of cheaper import and FTA’s are unlikely to affect the local packaging sector due to the intrinsic advantage of geographical proximity to the users unless, they shoot themselves in the foot again, which is not entirely unlikely. Regardless of the current muddled situation, there is plenty of money to be made in this sector. Elements like capital, technology and appropriate hardware, necessary for this

take-off are already available, what is missing is the managerial and operational excellence. Machines are the best money can buy, but these machines have to run at the designed maximum speeds, change overs have to be like pit stop racing and wastages have to be as per world class standards. There is no justification spending a fortune to buy the best hardware and not take out the maximum out of them. Foremost reason for this not happening is the ever-present intrusion and dictatorial control by the entrepreneurs. Couple that with the disinterested workers who lack good salaries,

‘REGARDLESS OF THE CURRENT MUDDLED SITUATION, THERE IS PLENTY OF MONEY TO BE MADE IN THIS SECTOR. ELEMENTS LIKE CAPITAL, TECHNOLOGY AND APPROPRIATE HARDWARE, NECESSARY FOR THIS TAKE-OFF ARE ALREADY AVAILABLE, WHAT IS MISSING IS THE MANAGERIAL AND OPERATIONAL EXCELLENCE’ 42

conducive work environment, self-respect, motivation, training, delegation and ownership – altogether a lethal blend to kill initiative, morale, professionalism and quest for excellence. Sometimes one wonders why do the entrepreneurs like to hire the best people and then turn them into robots who will follow given directions. Excellence can never be achieved by the entrepreneurs on their own. It requires relying on good people, a great team, motivated, happy and content led with a clear goal, along with the will and drive to reach the top. Every time you hire a pair of hands, one brain comes free with it. Using these brains to your advantage will carve your success story. A lot of these companies will unfortunately go out of business and die. The ones that will survive, compete internationally and grow will be ones who have created an ‘Edge’ for themselves by squeezing the last ounce of efficiency from their hardware and operations by focusing on their people.

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