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10 Weekly Roundup 14 EO, entrepreneurs ‘special tea club’
16 16 Alibaba vs Tencent in Pakistan? 24 Power Cement gears up for infrastructure spending spree
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30 From rags to riches, chasing the Pakistani dream 36 We have come a long way, the wrong way! Faraz Khalid
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Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Arshad Hussain l Muhammad Faran Bukhari l Syeda Masooma l Ghulam Abbass l Ahmad Ahmadani Shehzad Paracha l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Illustrator: ZEB l Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk
CONTENTS
welcome
POLICY REVERSALS There is no clearer indication that the current administration has absolutely no clue what they are doing on matters of fiscal policy than the fact that they first withdrew, and then withdrew their own withdrawal of, the previous administration’s policy to make it harder for tax evaders to transact in real estate and automobiles. It is abundantly clear that the government did not come in with a clear policy agenda, did not understand the nuances of the challenges they face, and are operating under the assumption that no good has been done by any of the last two administrations to have governed the country. In fairness to the Pakistan Tehrik-e-Insaf, it is easy to assume that neither the Zardari Administration nor the Nawaz Administration had much to speak of by way of policy contributions. But it is the responsibility of the cabinet and the prime minister to know the difference between “not much” and “nothing at all”. The tax policy that former Finance Minister Miftah Ismail was able to put in place in the waning days of the last government was blunt, but appeared to be quite effective: it effectively banned the sale or purchase of real estate or vehicles by anyone who does not file their tax returns. The government was effectively saying to tax thieves that they would not longer be free to park their untaxed wealth into real estate. It was a bold move, and one that naturally
sparked considerable opposition, but the previous administration had remarkably held firm on its decision, and had appeared to be on the verge of inducing a significant portion of the population to change their behaviour, in large part because they had paired the stick of the transaction ban with the carrot of the tax amnesty: anyone who declared their assets and agreed to pay taxes on a going forward basis would have any previous tax evading crimes forgiven. The policy may yet fail, but it appears worth trying, and has relatively few downsides. So it was baffling to see the Imran Khan government backtrack from it, and they have rightfully reversed course and committed themselves to it, with some sensible modifications. We have no problem with a government changing their minds, or even to do so relatively rapidly. We would just hope that their opinions were formed after careful deliberation rather than knee-jerk opposition to the achievements of their political rivals. The Pakistani voters deserve nothing less.
Farooq Tirmizi Managing Editor
FROM THE MANAGING EDITOR
9
Former caretaker finance minister Dr Shamshad Akhtar
QUOTE
Pakistan can easily increase the tax-to-GDP ratio to 22-23 percent; steps must be taken to reduce tax avoidance
“Kuwait is invited to invest in the exploration sector, which had stopped exploration as no licence had been awarded for past five years” Finance Minister Asad Umar
3.72pc
growth was posted in textile exports during the first two months (July-August) of current financial year 2018-19. During the period from July-August, 2018 textile products worth $2.280 billion were exported as compared to the exports of $2.179 billion in the same period of last year, according to the latest data released by the Pakistan Bureau of Statistics On a month-on-month basis, the textile group exports from the country witnessed 7.33 per cent growth in August this year as compared the same month last year. During the period under review, the country earned $1.258 billion by exporting the textile products as against the $1.172 billion in the same month last year, it added. In first two months, the textile products that recorded positive growth in their exports included cotton yarn by 6.52 per cent, yarn other than cotton by 2.84 per cent, knitwear by 11.29 per cent, bedwear by 2.72 per cent and towels by 7.02 per cent respectively. Textile items with negative growth in their exports during the period under review included raw cotton by 62.14 percent, cotton cloth by 0.69 per cent, and other textile products by 13.13 per cent respectively. From July-August 2018, about 79,733 metric tonnes of cotton yarn, valuing $224.145 million, were exported as against the exports of 81,064 metric tonnes, worth $210.418 million, in the same period of last year.
Rs489m
worth of readymade garments were exported in the first two months (July-Aug) of the current financial year 2018-19 compared to the exports of 16,992,000 dozen worth $439.224 million in the corresponding period of last year. During the period from July-August, 2018, the exports of knitwear grew by 11.29 per cent as compared the exports of the same period of the last year, said the data released by the Pakistan Bureau of Statistics. Meanwhile, 7,450,000 dozen of readymade garments, valuing $435.425 million, were exported during the period under review as compared the exports of 6,108,000 dozen worth $418 million in the same period of last year. The textile group exports from the country during the first two months of the current financial year grew by 3.71 per cent as compared the corresponding period of the last year. The textile products worth $2.280 billion were exported in the year under review as compared the exports of $2.179 billion in the same period last year.
10
Rs500m
was paid by Pakistan Gas Port Consortium (PGPC) to Pakistan LNG Limited (PLL) on account of customs duty on liquefied natural gas terminal.The PLL deducted Rs500m from the regasification charges of PGPC’s terminal following a decision of the honourable court, killing the controversy of duty clearance and terminal charges. The row between PLL and PGPC emerged as the later refused to pay customs duty and withholding tax worth Rs2.5b. This refusal sparked criminal proceedings under the Customs Act against PGPC. The stoppage of regasification through the PGPC terminal was also on the cards in case the duty was not cleared. Also, two cheques worth Rs480.68m were also dishonoured by the concerned bank with remarks that the matter was pending with the court. Sources said PLL had earlier called an important meeting of its board of directors as the Customs Collectorate Port Qasim decided to initiate criminal proceeding against PGPC under Customs Act, 1969. Model Customs Collectorate Port Bin Qasim issued a demand notice to PGPC for payment of deferred customs duty on import of floating storage and regasification unit (FSRU) by August 15, 2018, said sources.
“I will hold those defaulters accountable who are not giving billions of rupees to Pakistan Railways” Minister for Railways, Sheikh Rashid Ahmad
QUOTE
$100
per barrel could be the price of oil by early 2019 as sanctions against Iran bite, commodity merchants Trafigura and Mercuria said at the Asia Pacific Petroleum Conference (APPEC) in Singapore. Almost 2 million barrels per day (bpd) of crude could be taken out of the market as a result of the U.S. sanctions against Iran by the end of the fourth quarter this year, said Daniel Jaeggi, president of commodity merchant Mercuria Energy Trading, making a crude price spike to $100 a barrel possible. Washington has already implemented financial sanctions against Iran and it plans to target the country’s oil exports from November 4, putting pressure on other countries to also cut Iranian crude imports.
$10b
offshore gas pipeline Memorandum of Understanding (MoU) has been signed between Pakistan and Russia. Reportedly, after signing of MoU, Pakistan will receive 500 million to 1 billion cubic feet of gas on a daily basis once the project is completed and Russia’s Public Joint Stock Company Gazprom will work with Pakistan’s state-owned Inter State Gas Systems (ISGS) together on the $10 billion project which is aimed at fulfilling Pakistan’s gas needs. Russian energy giant Gazprom will conduct a feasibility study of the project and after conducting the feasibility study, the final cost of the gas supply project will be assessed by Gazprom while the project will be constructed by Russia on a build, own, operate and transfer basis. Sources at the petroleum division informed that it is expected that the pipeline will be completed in three to four years starting from March 2019. They added that this gas pipeline deal between the two countries will serve China Pakistan Economic Corridor (CPEC), which is now in its industrialization phase and is in need of gas for its Special Economic Zones (SEZs).
Rs36m
for Diamer-Bhasha dam were donated by the employees of Oil and Gas Development Company Limited (OGDCL). Keeping in view the urgency and seriousness of water crisis in Pakistan, the OGDCL has shown full support for the establishment of Diamer Bhasha dam, an initiative of the Chief Justice of Pakistan. According to a press release, the company earmarked 1 percent of its profit for public welfare projects and laid special emphasis under its CSR programmes for water supply, water resource development and conservation. Since the company’s operations were mainly in remote areas, OGDCL has always played a proactive role to overcome the water crisis by supplying clean drinking water to local communities residing around its concessional/operational areas.
Rs675b
is the revised size of the Public Sector Development Programme (PSDP) for the current financial year 2018-19, after the government decided to slash it from Rs800b. Senate’s Standing Committee on Planning Development and Reforms was informed that the developmental expenditures under Public Sector Development Programme (PSDP) have been revised from Rs800 billion to Rs675 billion. The committee met under the chair of Senator Agha Shahzaib Khan Durrani and considered recommendations of members on the Finance Supplementary Amendment Bill, 2018, regarding Public Sector Development Programme 2018-19. Briefing the committee, Advisor to Planning Commission Asif Shaikh said that a total of Rs125 billion was slashed from the total PSDP, which would be spent on the priority projects of social development. He said that unapproved projects for financing under PSDP had been dropped and maximum efforts were made to continue all such projects where 10 per cent was spent from the public money.
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projects have been cancelled by the federal government from the he current financial year’s Public Sector Development Programme (PSDP) citing they had been added on political grounds. In PSDP 2018-19, an amount of Rs 3-4 billion had been allocated for different projects under CPEC, besides making an allocation for the different projects in Gwadar. He further informed that committee that Rs34.5 billion would be spent on the development of Federally Administered Tribal Areas.The revised PSDP 2018-19 document shows some projects coming under the China-Pakistan Economic Corridor (CPEC) and Gwadar city have been excluded. The government’s decision to drop unapproved projects would decrease the total financing needs of the PSDP by Rs2 trillion to Rs4 trillion.
BRIEFING
“We see Pakistan as a country full of opportunity where ride-sharing has just not scratched the surface yet” Uber Regional General Manager for Middle East and Africa Anthony Le Roux
$230m
QUOTE
Rs1.2t
was the worth of online transactions during the previous financial year 2017-18. According to the State Bank of Pakistan (SBP), as many as 3.1 million users have been registered with 28 banks offering internet banking services. The transactions showed a growth of 23.9 percent and 30.3 percent respectively, compared to the previous year. Banks are offering a variety of financial services through Internet Banking (IB) such as Intra-bank and Interbank fund transfer, scheduled fund transfers, Utility Bills payments, mobile airtime top ups, Intra-bank credit card payments, School fee payments etc.
Rs1.5b
worth of substandard diesel was seized at Mehmood Kot which was being transported from Karachi to Muzaffargarh through the pipeline of Pak-Arab Pipeline Company Limited (PAPCO). this high-speed diesel was imported from Karachi to Mehmood Kot by three oil marketing companies (OMCs) through PAPCO’s pipeline after necessary examinations and tests from the government laboratories. They said upon checking, the flash point of the diesel (HSD) was found at 94 points and after a certain test from the government laboratory it was stored in the storage tanks of PAPCO in Karachi. Later, they added, PAPCO transported 12,000 tonnes of diesel through a pipeline from Karachi to Mehmood Kot (Muzaffargarh). However, flash point of that diesel was “found to be at 51 to 53 point during the retesting at Mehmood Kot”, they said. Officials in the petroleum division on the condition of anonymity said that the sale of diesel has reduced to 0.15 million tonnes per month “owing to the ignorant behaviour of the ministry of energy, Oil and Gas Regulatory Authority (OGRA) and Pakistan Customs”.
will be invested by Al-Futtaim Group in Pakistan’s automobile sector through a joint venture (JV) with French carmaker, Renault. Officials of the Engineering Development Board (EDB) told Pakistan Today that Renault has formally given an application with regard to establishing an assembling plant in Pakistan. The company has acquired 54 acres of land in the Faisalabad Industrial Estate Development and Management Company (FIEDMC), the largest industrial zone in the country. The latest technology-oriented cars of Al Futtaim-Renault are expected to hit the roads in 2020, officials said, adding that 12 automobile companies have made an investment of $746 million under the Auto Development Policy (ADP) 2016-21. Officials stated that the government has given 10 companies the status of ‘green field investment’, a type of foreign direct investment (FDI) where a parent company builds its operations in a foreign country from the ground up, while two companies have been given ‘brown field investment’ status, where a company or government entity purchases or leases existing production facilities to launch a new production activity. Similarly, United Motors (Pvt) Limited in partnership with Luoyang Dahe New Energy Vehicle and Yangste Motor Group have invested $19.05 million to assemble 800cc passenger cars, 1,000cc LCVs (pick up) and vans. Khalid Mushtaq Motors (Pvt) Ltd in a JV with Changan Kuayua Automobiles has invested $3.50 million to assemble LCVs. Kia Lucky Motors Pakistan Ltd, with the assistance of Kia Motors, has invested $190 million in the country’s automobile sector. Hyundai Nishat Motors (Pvt) Limited in a JV with Hyundai Motors will establish an assembling unit to manufacturer LCVs, electric cars and SUVs with an investment of $163million.
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$2b
cut in size of the biggest Chinese “Silk Road” project in the country, has been decided by the gov-ernment said the Railways Minister Sheikh Rasheed. The megaproject to revamp the colonial-era line stretching 1,872 km (1,163 miles) from Karachi to Peshawar was initially priced at $8.2bn, but wrangling over costs has led to delays. The changes are part of Islamabad’s efforts to rethink key Belt and Road Initiative (BRI) projects in Pakistan, where Beijing has pledged about $60bn in financing, but the new government of populist Prime Minister Imran Khan appears to be more cautious about the Chinese investment. “Pakistan is a poor country that cannot afford the huge burden of the loans,” Rasheed told a news conference in Lahore.
“We are working closely with the private sector which is advising us on making improvement in the business environment” Sindh Chief Minister Syed Murad Ali Shah
Rs50b
QUOTE
Rs2t
could be the yearly cost of the newly installed Pakistan Tehreek-e-Insaf (PTI) government to launch the five-million low-cost housing scheme. According to sources, the concerned department was recently asked to give its estimates on the low-cost housing project. The department’s officials, as the sources claim, informed the government that the minimum cost of a small house could be Rs2 million – making the cost of one million units per year to Rs2 trillion. Interestingly, the ministry’s estimates do not include the cost of land and other services required for the housing project, sources said, adding that the total cost of five million housing units in five years could be over Rs10 trillion.
Rs36m
for Diamer-Bhasha dam were donated by the employees of Oil and Gas Development Compa-ny Limited (OGDCL). Keeping in view the urgency and seriousness of water crisis in Pakistan, the OG-DCL has shown full support for the establishment of Diamer Bhasha dam, an initiative of the Chief Jus-tice of Pakistan. According to a press release, the company earmarked 1 percent of its profit for public welfare projects and laid special emphasis under its CSR programmes for water supply, water resource development and conservation. Since the company’s operations were mainly in remote areas, OGDCL has always played a proactive role to overcome the water crisis by supplying clean drinking water to local communities residing around its concessional/operational areas. OGDCL assured that financial support for this cause will continue in the future as well. The company pledged its commitment to support all such actions and programmes to strengthen the nation in order to ensure sustainability and to make Pakistan a prosperous country.
circular debt would be immediately paid back, the PTI government has decided. According to a private news channel, the finance ministry took this decision after the independent power producers (IPP) threatened that they will suspend power generation. Phase-wise payment will be initiated from Monday after the Ashura holidays and the weekend, sources in the Finance Ministry said. Rs34 billion will be paid to the Ministry of Power and the remaining Rs16 billion will be given at the end of next month. The amount of Rs50 billion has been taken as loan from eight banks. It is pertinent to mention that although the previous Pakistan Muslim League-Nawaz (PML-N) government claimed to have brought about an improvement in power production, it still passed on a gigantic circular debt of Rs1.148 trillion to the new government. In a meeting of the Senate special committee on circular debt last month, officials of the Ministry of Energy (Power Division) revealed that out of the total circular debt, Power Holding Private Limited (PHPL) had borrowed Rs582.86 billion whereas Rs566 billion was borrowed to cover receivables of power distribution companies. The meeting, chaired by Senator Shibli Faraz, was informed that PHPL was to pay Rs153 billion in annual interest on the loans. The Power Division had also requested the power-sector regulator to include the amount in consumer tariff, but the National Electric Power Regulatory Authority (NEPRA) dismissed the plea and argued that the loans were not part of the development budget and were acquired for smoothly running the distribution companies. The committee was told that the power sector was to receive Rs817.5 billion from private and government clients. On the other hand, power consumers were paying Rs159 billion on account of taxes in electricity bills. It was revealed that the Central Power Purchasing Agency (CPPA) was receiving Rs66 billion out of the Rs100 billion charged in electricity bills.
Rs72b
illegal payment was made by the previous PML-N government to power producers to eliminate the circular debt, said the Auditor General Pakistan (AGP). When the previous PML-N administration took reins of government in June 2013, it paid Rs480 billion to the power producers without undertak-ing any pre-audit in order to pay off the circular debt immediately. In a recent meeting of the Economic Coordination Committee (ECC) is said to have deliberated the issue and observed it required a detailed scrutiny. The ECC instructed the power minister to hold a meeting with the attorney general of Paki-stan and the AGP to evaluate the auditor’s general report and place workable recommendations for settlement of the audit paras.
BRIEFING
EO, ENTREPRENEURS
‘special tea club’ Why is arguably Pakistan’s second largest body after APTMA so disconnected to the outside world.
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By Muhammad Faran Bukhari
n 1987, Verne Harnish along with 22 former members of Association of Collegiate Entrepreneurs founded the Young Entrepreneurs’ Organization (YEO) in the United States (US). For them the organisation was to act as a path to their continued personal and business growth. However, within years, thanks to the development of a no border policy, the organisation expanded its reach internationally, and took the shape of what we now know as the Entrepreneurs Organization (EO). Today EO has 179 chapters spread across 57 countries and has more than 13,000 members globally.
However, its effectiveness at least in Pakistan is questionable to say the least. “EO is a peer-to-peer learning platform, where we learn from one another. Our vision is to build the world’s most influential community of entrepreneurs,” says EO Lahore President, Tariq Mehmood, in a conversation with Profit. Almost all EO members are successful and influential entrepreneurs, with the criteria for membership being that the individual must be a founder, co-founder or own a controlling share in a company that grosses no less than $1 million yearly. However, taking a company to that level is one thing, sustaining it is another, and that is where EO steps in to help.
Entrepreneurs’ Therapist
T
he most important aspect of the EO working lies in the chapter forums, that act more or less as a monthly counselling session for members regarding any problem they may be facing in their business or personal life. The EO Lahore chapter, consisting of 63 members, is divided into groups of 6 to 7 individuals, all of whom make up a single forum. “The format of the forum meeting is called 360, which basically is a 360-degree overview of the lives of members in the past month with particular emphasis on four major aspects. Firstly, we update each other regarding the ups and downs we have faced in our businesses. Secondly, we tell each other what we did for our families and how our family life has been over the past month. Thirdly, we tell them what we did for our own selves and lastly, we speak about what we have done for the community over the past month,” says Mehmood. The idea behind this exercise is to learn from each other’s experiences, be it professional or family life. Advisory language is frowned upon, and members are only allowed to share their own experiences, not their cousins, or someone else’s. In every meeting, one member delivers a presentation regarding a pressing issue he is facing in his business, which the other forum members try to solve through discussions. At the end of each meeting, members give their individual outputs regarding what they have learned. And then there are local chapter learning and social events, regional events and global events that members can attend to enhance their learning and networking. However, confidentiality and trust are the key in these close knitted forums, due to which each forum can have no more than one member from the same industry. “It is mandatory that there is no conflict of interest. If I am dealing in the oil business, then in my forum no one else can be from the same in-
THE ORGANISATION OFFERS EXECUTIVE EDUCATION PROGRAMS RANGING FROM A FOUR-DAY ENTREPRENEURIAL MASTER PROGRAM (EMP) THAT TAKES PLACE AT MIT, TO SIMILAR COURSES HELD AT LONDON BUSINESS SCHOOL, WHARTON AND HARVARD dustry. The basic system is the same across all industries, even if two people are operating in different industries. When these people come together and share their experiences, everybody gets an opportunity to learn. By not allowing more than one member from one industry what happens is that we are able to avoid sharing of information among competitors,” Mehmood explains. The organisation also offers executive education programs ranging
‘THE IDEA IS TO LEARN FROM EACH OTHER’S EXPERIENCES, BE IT PROFESSIONAL OR PERSONAL’ from a four-day Entrepreneurial Master Program (EMP) that takes place at MIT, to similar courses held at London Business School, Wharton and Harvard. “I am the only one in Lahore who is qualified from the EMP,” claims Mehmood.
Measuring EO’s effectiveness
T
he problem is not the work that EO is doing, but with how hard it is to measure in quantifiable terms the effectiveness of its work. We asked the EO’s Lahore president regarding the organisation’s impact in the city and his answer was far from convincing. “Not everybody can be a part of EO. Membership in most cases is granted by invitation. Only, people who take interest in learning
‘IF YOU SEE OUR COMBINED REVENUE, IT IS THE SECOND BIGGEST IN PAKISTAN AFTER THE ALL PAKISTAN TEXTILE MANUFACTURING AUTHORITY’
grow. Lots of entrepreneurs are growing,” he replies. Further, out of the 2,061 members globally inducted during the year 20162017, only 17 per cent were women entrepreneurs while 6 per cent were entrepreneurs under the age of 30. “We believe in women empowerment and diversification and equality. The guidelines we get from EO global ask us to increase the number of women entrepreneurs,” says Mehmood. However, as of now, only one out of the 63 chapter members in Lahore, is a woman. Tariq Mehmood also seems well aware of the challenges faced by the country’s economy and suggests that the government should work on improving the ease of doing business. “I wanted to create an oil reserve for my OMC and it has been two years that we been able to get a no objection certificate (NOC) for that. Our government officials should be willing to fulfil their duties,” he complains. However, when it comes to offering a solution and defining what role can EO play in achieving it, he has no clear answer. “If you see our combined revenue, it is the second biggest after the All Pakistan Textile Manufacturing Authority (APTMA) in Pakistan,” he claims. A body of that size could easily influence the government and play an active part in advising if not helping on issues like economic policy, but that is not the case. Take for example EO Qatar, which in 2014, worked closely with the Qatar government supporting the government’s goals of growth and diversification. However, Tariq Mehmood insists that the purpose of EO is only for its members to learn and grow and the organisation does not politicise its position. “We are not political people. The most we do is that we call notable politicians and have power lunches with them. For other things the Lahore Chamber of Commerce and Industry (LCCI) is there,” he says.
ENTREPRENEURSHIP
ALIBABA VS TENCENT
IN PAKISTAN?
The battle between China’s internet giants is about to come to Pakistan, and transform the country’s tech industry… but who will it be good for? By Farooq Tirmizi
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umours in financial markets are finicky things. In school, we were taught to ignore them, and certainly not to engage with them. In the markets, while it is probably a good idea not be a rumour-monger, it is not really possible to ignore rumours. Particularly when they are warning you about an earthquake coming your way. An earthquake that will shake up the Pakistani economy and change the way Pakistanis buy and sell things forever. By now, anyone who has been paying attention realizes that Alibaba’s interest in Pakistan is a lot more than a passing fancy. Jack Ma clearly has plans that include dominance in Pakistan. What is also clear to people who have been keeping their eye out for the signs, and have been hearing the rumours, is that Alibaba will not be alone in its leap into Pakistan. It will likely be joined in battle by its biggest rival in China, Tencent, better known outside China as the company that invented and owns WeChat. Sources in Pakistan’s tech industry say that they have been hearing a persistent rumour for the past several months: that Tencent is looking to
TECH RIVALRY
enter the Pakistani market by acquisition, and that their target for doing so is likely to be JazzCash, the mobile wallet service owned by Jazz, the telecom giant formerly known as Mobilink. This transaction, should it go through, would have a transformative impact on Pakistan’s technology, financial services, retail, and real estate sectors. It will introduce into Pakistan a fierce commercial and technological rivalry from China that will push the country’s economy forward, though it is not yet clear the extent to which its impact on local companies will be positive. But first, a few notes for people who have not been paying attention.
How Alibaba came to Pakistan
W
e will skip the usual history lecture on how Pakistan’s e-commerce market evolved because it is not much of a history. For a long time, nobody sold anything on the internet in Pakistan because we are an exceedingly low-trust society and we all listened to our riskaverse uncles who said “nobody buys anything on the internet in Pakistan”. Then a few brave souls decided to try anyway. There was HomeShopping. pk and Liberty Books and then a few others jumped into the fray. But the market was virtually nonexistent until Germany’s Rocket Internet jumped into the fray and launched Daraz.pk. Rocket Internet is a company whose business model is relatively
“ON A TYPICAL DAY, FOR SOME OF THE LARGER E-COMMERCE PLAYERS, COD ACCOUNTS FOR APPROXIMATELY 80-85% OF THE BUSINESS. SO WITHOUT COD, THERE IS NO [E-COMMERCE] BUSINESS” Hamaad Ravda, former chief marketing officer of Daraz.pk simple: take the best ideas of internet companies in the United States and Europe and try to recreate them in emerging and frontier economies, eventually selling those clone businesses to the original companies in advanced economies, or anyone else who might be willing to pay up. Daraz.pk was Rocket Internet’s first investment in Pakistan, and it was something of a mixed bag. Commercially, there is absolutely no question that it was a smashing success. Daraz is by far Pakistan’s largest e-commerce player, with an estimated 12-15% share in Pakistan’s approximately $800 million e-commerce market. It also has the largest network of vendors and other
ANT FINANCIAL’S STRATEGY IS LIKELY TO COMBINE THE OFFERING OF ITS PRODUCT IN CHINA – ALIPAY – WITH THAT OF EASYPAISA’S MOBILE WALLET OFFERINGS. IN ESSENCE, IT WOULD REPLICATE WHAT PAYTM BUILT IN INDIA: A SINGLE SERVICE THAT COMBINES BANK ACCOUNTS AT FORMAL FINANCIAL INSTITUTIONS WITH THE CASH-VENDOR-DEPENDENT MOBILE WALLET MODEL OF EASYPAISA. (YES, SINCE PAYTM HAS BEEN DOING THIS SINCE 2010 AND PAKISTAN ALIPAY WILL LAUNCH IN PAKISTAN IN EARLY 2019, PAKISTAN’S MARKET IS IN FACT ABOUT A DECADE BEHIND INDIA’S) 18
partners. But technologically, Daraz is a primitive platform, with virtually no advanced technology or analytics to speak of, and an interface that is only slightly more sophisticated than the kind of templates one can buy off the internet for $50. Customisation is nonexistent. Then again, given the absence of well-capitalised competition in Pakistan, Daraz did not really need a sophisticated operation to win market share. All it really needed was to offer a better customer experience than its rivals, which it did. Rocket Internet was never interested in investing into Daraz any more than it absolutely needed to in order to build an attractive enough asset to sell, and it was able to achieve that with the simplest of internet technology to attract one of the largest internet giants in the world. Enter Alibaba. Rumours of Alibaba’s interest in buying out Daraz had been swirling since at least the latter half of 2016 and were given a serious boost in the first quarter of 2017 when Jack Ma personally visited Pakistan and publicly stated his interest in the e-commerce space in the country. It was not hard to guess that, if Alibaba were to enter the Pakistani market by acquisition, their only logical target would be Daraz. The transaction, however, did not close until May 2018, when Alibaba bought out Daraz for a rumoured (never confirmed) $150 million. By that time, Alibaba’s financial technology
Jack Ma with Nawaz Sharif (fintech) subsidiary Ant Financial had already bought a 45% share in Telenor Microfinance Bank for $185 million in March 2018. It was the Ant Financial transaction, more than even the Daraz acquisition, that suggested that Alibaba’s interest in Pakistan was a lot more than a passing fancy. It suggested that Alibaba is not just interested in acquiring a foothold in Pakistan’s existing market. It states, unequivocally, that Alibaba intends to grow Pakistan’s market by building out the necessary – and currently missing – infrastructure. And if Tencent is coming to Pakistan, Alibaba had better implement whatever plans it has rather rapidly, because the competition may get heated very quickly.
COD: the bane of Pakistani e-commerce
T
here are no reliable numbers on just how Pakistan’s e-commerce business is or how fast it is growing, but most experts agree
that it is probably larger than at least $600 million and probably not much more than $1 billion on the high end. At Profit, we split the difference and assume the market is probably closer to around $800 million in size today. Daraz, as we stated is the largest player, with revenues exceeding $100 million, according to industry sources. The second largest is Yayvo, owned by TCS, the largest courier company in Pakistan, which has revenues of $12-15 million per year. Then there are Pakistani retailers who have their e-commerce arms, the largest of which can make as much as $10 million a year, and the smaller ones of which are at around $1-2 million a year. All in, these retailers account for approximately another $100-150 million. Regardless of how big the market is, or how rapidly it is growing, everyone agrees that it could be bigger and growing a lot faster if only its biggest hurdle could be resolved: the fact that the business still relies heavily on cash-on-delivery (COD) as its primary payment mechanism.
“On a typical day, for some of the larger e-commerce players, COD accounts for approximately 80-85% of the business. So without COD, there is no [e-commerce] business,” said Hamaad Ravda, the former chief marketing officer of Daraz.pk and one of the leading architects of Pakistan’s e-commerce industry. “That balance does change on days like Black Friday when you offer significant discounts, when electronic payments can go as high as 35% of all transactions.” Ravda says that this is despite the fact that banks have made it considerably easier to make online payments through both credit and debit cards. People simply seem to prefer paying with cash. So what is the matter with COD? In a nutshell, everything. But more specifically, four things: customer returns and cancellations are much higher, cash cycles are much longer, delivery costs are much more expensive, and the customer experience is worse. The biggest problem with COD
TECH RIVALRY
Tencent headquarters in Shenzhen from the perspective of the e-commerce business is the returns: the fact that the customer is under no obligation to make the payment once the delivery person arrives at their doorstep with the goods for which the e-commerce company has already made a payment for inventory costs and delivery charges. The customer can effectively return or cancel the order on the spot. “COD has a lot of returns and cancellations, which can account for up to 30% of all transactions. The rate for electronic transactions [where the customer pays online through a credit or debit card] is between 7% and 10%, so that differential is really, really high,” said Ravda. “As an e-commerce business anywhere in the world, if you have a 7% return rate, you’re very happy. So obviously, a higher return rate is a huge problem and it increases your cost basis.” But Ravda points out that, on this front, Pakistan is not substantially different from India or Southeast Asia. “The story in Pakistan is not that
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different from what has played out in China, India, or Southeast Asia. In India, Amazon and Flipkart still do 6065% of their business on COD even now,” he said. The other problem with COD: unlike for electronic payments, where any adult can sign the delivery receipt acknowledging delivery, in the case of COD, the person who actually made the order has to physically be at the delivery address in order to receive the package and make the payment. Most people who have the earning power and inclination to shop online are not at home during business hours, which is when most delivery services attempt to deliver packages. This often results in delivery services having to make repeated attempts to deliver packages to people’s homes, which in turn has two additional consequences: higher delivery costs, and worse customer experiences. And those costs differentials can be quite substantial. “For a 1 kilogram package going from Karachi to Lahore, if I have an
electronic payment, TCS will charge me Rs80 per package. For the same package on COD, I have to pay Rs250 per package,” said Ravda. “Now, if the selling price of that package is Rs6,000 or more, that difference is probably not that big a deal for me. But for things that cost less, that can be a really big deal.” TCS and other courier services are not being malicious when they charge these differences. They are doing so because they know it is much more likely that they will need to have repeat visits before they are able to make a COD delivery than one that has an electronic payment associated with it. But of course, when a package is in transit for longer, the probability that it will get lost is also greater, which in turn leads to the problem of the customer experience being worse than for electronic payments. “When packages get lost, the customer sometimes tries to contact the e-commerce company, and sometimes, the vendor, and sometimes the courier company, which can create
confusion,” said Ravda. “But if something goes wrong and the problem is not resolved, the customer will blame the e-commerce business, not the courier company.” And then there is the challenge of cash flows. E-commerce businesses are fundamentally supposed to be retail businesses that just happen to be based online rather than at physical locations. The attraction of the retail business is that, while your costs and inventory can be bought on credit, your revenue converts to cash instantly because the customer has to pay you before they can take possession of the goods they are buying from you. In Pakistani e-commerce, electronic transactions follow that rule, but COD transactions do not. For COD transactions, the customer is paying before they take possession of the product, but the e-commerce business does not get paid until the courier company deposits that cash into the e-commerce company’s account, which can typically be as much as four weeks later, and sometimes even longer. For nascent startups low on cash, that can serve as a death knell. It is the reason why many e-commerce companies struggle to stay alive beyond a few months. “Both TCS and Leopard have tried to improve their performance on this front, but it is still pretty bad,” said Ravda. “Leopards in particular has done a very good job in really listening to vendors. It is not easy, but easier to work with them.” The central problem, Ravda points out, is that Pakistani courier companies are simply not designed to handle large scale COD transactions, and have been struggling to keep
pace with the growth in e-commerce. The solution, at least for the larger e-commerce companies, might be to do what Flipkart does in India: hire its own riders in addition to having relationships with courier companies. “Flipkart has over 4,000 riders across India,” says Ravda. “What that does is allow them to retain control of their supply chain in the last mile, and it gives them instant control over their own cash.” Ultimately, however, the market can only grow sustainably once it moves away from COD and towards more electronic payments. That process, however, is much more long drawn out than any of the existing players can solve on their own.
How Alibaba and Tencent could solve the problem
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iven how much of the Pakistani e-commerce market consists of COD transactions – and how much of a hurdle to growth such transactions are – it makes sense that two of the largest foreign e-commerce companies entering the Pakistani market have either already bought a payments solution or are actively considering buying one. The goal appears to be to take the power of large and respected financial institutions such as Ant Financial, and combine them with the local vendor and distribution network of the mobile wallet companies like Easypaisa and JazzCash. “Look, the banks only serve about 12% of the population, which means that only about 12% of the population has the ability to make payments online, if you assume that everyone who has a bank account also has a debit
YAYVO, HOWEVER, IS NOT LIKE DARAZ. IT IS MUCH SMALLER, FOR INSTANCE, AND DOES NOT HAVE QUITE THE SAME LEVEL OF CAPITAL COMMITMENT BEHIND IT COMPARED TO DARAZ. WHILE THERE HAVE BEEN AT LEAST SOME RUMOURS ABOUT TENCENT BEING OFFERED THE PROSPECT OF BUYING OUT YAYVO, SOURCES INSIDE THE INDUSTRY SAY THERE IS NO INDICATION YET THAT TENCENT IS AT ALL INTERESTED IN ACQUIRING YAYVO FROM TCS
card,” said Ravda. “Easypaisa and JazzCash add another 9% or so of the population, which is a very substantial increase in the total addressable market.” Ant Financial’s strategy is likely to combine the offering of its product in China – Alipay – with that of Easypaisa’s mobile wallet offerings. In essence, it would replicate what Paytm built in India: a single service that combines bank accounts at formal financial institutions with the cash-vendor-dependent mobile wallet model of Easypaisa. (Yes, since Paytm has been doing this since 2010 and Pakistan Alipay will launch in Pakistan in early 2019, Pakistan’s market is in fact about a decade behind India’s.) “Nobody takes the mobile wallet guys – Easypaisa and JazzCash – seriously except the e-commerce companies,” said Ravda. “But the banks will be lining up aggressively to do business with Ant Financial.” Ant Financial has announced that Alipay will be launched in Pakistan by the end of 2018 and will likely be fully functional in the country by the first half of 2019. Incidentally, in case you were wondering, yes, it is Alipay that Finance Minister Asad Umar was referring to when he referred to a “PayPal alternative” that would be launching in Pakistan in the next three to four months, during his interview with Muhamamad Malick on 92 News on September 28. And Alipay’s move into the electronic payments business in Pakistan could be given competitive impetus if the rumours of Tencent’s interest in acquiring JazzCash are true: having its biggest rival from its home market competing with it in Pakistan is likely to spur Alipay to invest more heavily into building out its infrastructure in the country. So how will having these two companies enter the market help the transition towards COD? It comes down to the issue of trust. “It comes down to trust. Until the trust story is not there, customers will not want to use a debit card online. Alipay might help with that though, because even though it will be operating on the back-end, customers might feel a little more safe and secure knowing that their transactions are being handled by a large global institution like Ant Financial,” said Ravda. Some of the pain points that
TECH RIVALRY
might get taken away once Alipay becomes fully operational is the better integration of payment solutions directly into e-commerce websites and apps. Currently, while electronic payments are possible online in Pakistan, most transactions require a customer to leave the e-commerce company’s website onto the payment vendor’s website in order to be able to accept payments. That shift to a third-party website lasts only a few seconds, and may sound like nothing, but can be the cause of a significant portion of transactions never being completed online. When the cost of clicking away from a site is zero, customers can be surprisingly fickle about the tiniest of inconveniences.
The Alibaba effect on Daraz
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libaba’s acquisition of Daraz is still relatively recent, but the Chinese internet giant is already beginning to have an effect on the Pakistani company. Daraz has a new app on Android and iPhones that is very similar to the Ali Express app. But the new app is just the beginning. Over time, Alibaba has big plans for transforming Daraz from what it is today to becoming a much more sophisticated e-commerce platform. “The biggest changes will be on the technology side, since Daraz has a relatively small technology team,” said Ravda. He expects there to be significant improvements to the interface of the website, its search functionality, and the customization of its interface based on the customers’ buying history. Importantly, however, both the app and the website will have much closer integration with Easypaisa, and eventually with Alipay. The biggest change, however, is going to be the integration of Daraz into the wider Alibaba network of e-commerce websites. “The model for this is Lazada, which is the Rocket Internet e-commerce company in Southeast Asia that Alibaba bought. Within a year, the entire inventory of Taobao [Alibaba’s online consumer-to-consumer marketplace in China] was made available to Lazada customers as well,” said Ravda. “To an extent, this inventory is already available through Ali Express, but this is going to be much more accessible to
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ANT FINANCIAL HAS ANNOUNCED THAT ALIPAY WILL BE LAUNCHED IN PAKISTAN BY THE END OF 2018 AND WILL LIKELY BE FULLY FUNCTIONAL IN THE COUNTRY BY THE FIRST HALF OF 2019. INCIDENTALLY, IN CASE YOU WERE WONDERING, YES, IT IS ALIPAY THAT FINANCE MINISTER ASAD UMAR WAS REFERRING TO WHEN HE REFERRED TO A “PAYPAL ALTERNATIVE” THAT WOULD BE LAUNCHING IN PAKISTAN IN THE NEXT THREE TO FOUR MONTHS, DURING HIS INTERVIEW WITH MUHAMAMAD MALICK ON 92 NEWS ON SEPTEMBER 28 many more people now.” So does that mean that Daraz will shift its focus away from selling local Pakistani goods towards more goods imported from China? Not exactly. “One of the biggest reasons Alibaba bought Daraz was because of its local vendor network, so obviously that is something that they value,” said Ravda. “This is just an additional layer of offerings that they will use to differentiate themselves.” Another key new feature will be better communication tools that will allow customers to communicate directly with vendors, and will allow vendors direct access to their own customers through the platform. This will be particularly helpful in removing some of the coordination irritants that can arise in the case of logistical issues relating to delivery, in addition to questions about inventory, customization, bulk ordering, etc. And of course, Ant Financial’s superior resources will help with fraud prevention, which helps the market as a whole, as well as providing vendors with better analytics that help them understand their own customers better and in turn incorporate those insights into their design process, which would improve the quality of products available to the Pakistani consumer.
What’s next for Pakistani e-commerce?
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he problem for e-commerce in Pakistan is that, aside from Daraz, no other company was willing to invest the $20 to $30 million it would take to build out a serious op-
eration. And for that, the responsibility lies with the relatively few companies that have the cash to invest in e-commerce but choose not to. In particular, the larger retailers in Pakistan – like Gul Ahmed and Khaadi – both earn upwards of $10 million a year from e-commerce but that still accounts for less than 10% of their total revenues. It is enough for them to maintain some semblance of an infrastructure for it, but not enough for them to invest an amount that could buy them an entire new factory, even though, in many experts’ views, that investment would more than pay off in terms of future revenue growth. “People don’t appreciate what we have in Pakistan,” said Ravda. “Logistics are pretty good in Pakistan. Almost all places are covered within 3-4 days. That’s not true in Bangladesh. Sure, payments are not great, but we’ve been able to have online since 2013.” That raises an important question: if Tencent is going to buy JazzCash, will it also buy another e-commerce company in Pakistan to follow the same strategy as Alibaba? The next largest company – and the only major company left that is not affiliated with a retailer – is Yayvo, owned by TCS, and widely rumoured to be up for sale. Yayvo, however, is not like Daraz. It is much smaller, for instance, and does not have quite the same level of capital commitment behind it compared to Daraz. While there have been at least some rumours about Tencent being offered the prospect of buying out Yayvo, sources inside the industry say there is no indication yet that Tencent is at all interested in acquiring Yayvo from TCS.
TECH RIVALRY
POWER CEMENT GEARS UP FOR
INFRASTRUCTURE SPENDING SPREE The company will increase its production capacity by __% to 3.4 million tons per year, with a new plant expected to come online by June 2019 By Arshad Hussain
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s the government of Pakistan prepares to launch into what many expect will be a multi-decade long infrastructure spending spree, cement manufacturing companies are preparing to meet that demand and heavily investing in their cement production capacity. Power Cement wants to make sure that it does not get left behind in the race to serve that explosion in demand from both the government and the private sector.
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“The Power Cement plant will start production on full capacity in June 2019 and it will produce 7,700 tons per day of clinker and 9,600 tons per day of cement,” said Kashif Habib, CEO of Power Cement, the company previously known as Al-Abbas Cement until its acquisition by the Arif Habib Group, a financial and industrial conglomerate, in 2010. The company was founded in 1981 and operates its cement plant in Nooriabad, about 135 kilometres from Karachi. The company currently relies on selling its cement to private sector real estate developers in Karachi, Hyderabad, Thatta, Kotri, and other cities in Sindh. Its biggest customers include the Defence Housing Authority (DHA), the military-owned real estate developer, and Bahria Town, Pakistan’s largest private sector real estate development company. The plant’s proximity to the ports in Karachi and Port Qasim allow Power Cement to export its product to the Gulf Arab countries and other parts of the world as well. “Bahria Town was the big developer over the last eight to ten years, and they developed major projects during that time,” said Habib, in an interview with Profit. “The constructed high-rise buildings, smaller houses, and infrastructure. Now, as construction at Bahria Town tapers off, it is ramping up in DHA City, and we expect it will hit its peak in the next few years.” The cement sector has been
“IF THE GOVERNMENT STARTS THE CONSTRUCTION OF LARGE DAMS IN THE NORTHERN PARTS OF THE COUNTRY, THE DOMESTIC CONSUMPTION OF CEMENT WOULD INCREASE MANIFOLD. ALL CEMENT COMPANIES ARE HOPING FOR A BIG BOOST TO INFRASTRUCTURE SPENDING BY THE GOVERNMENT” Kashif Habib, CEO of Power Cement heavily dependent on local demand for growth over the past decade. Nearly 90% of the total cement produced in the country in the fiscal year that ended June 30, 2018 was used domestically, according to data from the All Pakistan Cement Manufacturers Association (APCMA). Total domestic consumption of cement, in terms of to-
THE CEMENT SECTOR HAS BEEN HEAVILY DEPENDENTON LOCAL DEMAND FOR GROWTH OVER THE PAST DECADE. NEARLY 90% OF THE TOTAL CEMENT PRODUCED IN THE COUNTRY IN THE FISCAL YEAR THAT ENDED JUNE 30, 2018 WAS USED DOMESTICALLY, ACCORDING TO DATA FROM THE ALL PAKISTAN CEMENT MANUFACTURERS ASSOCIATION (APCMA). TOTAL DOMESTIC CONSUMPTION OF CEMENT, IN TERMS OF TOTAL TONNAGE, HAS GROWN AT AN AVERAGE OF 8.1% PER YEAR IN THE NINE YEARS BETWEEN THE POST-FINANCIAL CRISIS TROUGH IN 2009 AND FISCAL YEAR 2018, COMPARED TO A DECLINE OF AN AVERAGE OF -8.9% PER YEAR FOR EXPORTS DURING THAT SAME PERIOD.
tal tonnage, has grown at an average of 8.1% per year in the nine years between the post-financial crisis trough in 2009 and fiscal year 2018, compared to a decline of an average of -8.9% per year for exports during that same period. However, for plants located in the southern part of Pakistan, there are concerns that the domestic demand engine may be slowing down even as exports fail to pick up pace. In 2017, for instance, the Supreme Court of Pakistan ruled that the maximum height for buildings in Karachi could only go to six stories owing to the municipal government’s inability to provide adequate water and sanitation infrastructure to buildings that were higher than that. That feared slowdown has led companies like Power Cement to begin hoping that the government’s infrastructure programs will pick up any slack left from private sector real estate developments. “If the government starts the construction of large dams in the northern parts of the country, the domestic consumption of cement would increase manifold,” said Habib. “All cement companies are hoping for a big boost to infrastructure spending by the government.” The fears of a slowdown are not just theoretical. Cement companies have still been able to sell much of the cement they have produced, but only after significantly lowering the price. For the first nine months of the fiscal year ending June 30, 2018, Power Cement saw its cement dispatches increase by 3% to 504,000 tons, but revenue during that same period declined by 0.5%, which in turn cause net profits to go down by 10.9% during that period.
CEMENT DEMAND
Cement exports
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onetheless, while cement company CEOs hope to see a pick-up in government spending on infrastructure, they are also realistic about the prospects of such an increase, given the fact that the government will be forced by austerity measures imposed by the International Monetary Fund (IMF) to cut spending, and much of that spending decrease is likely to be extracted from the development budget. As a result, Habib is pinning his hopes on being able to export cement from Pakistan, though on that front, he believes he could use a little bit of government help. “Cement factories are paying 30% of the cost of cement in sales tax, federal excise duty, and customs duties. These huge taxes make us uncompetitive in the international markets,” he said. This is at a time when the price of coal, a key fuel source for cement production, has gone up, while the government has announced an increase in the prices it will allow state-owned gas companies to charge industrial consumers of Liquefied Natural Gas (LNG), the key alternative to coal for cement companies. “The federal government should give rebates to cement exporters if it really wants to enhance exports,” said Habib. “The cost of production of ce-
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ment is much higher compared to the international market,” he claimed. “We can export clinker to other South Asian countries, since the cost of clinker is higher in other parts of South Asia compared to Pakistan,” he said. The reason behind rising clinker prices in the international market is the decision by the Chinese government to shut down small cement manufacturing units which were not compliant with its new environmental laws. These small cement plants were exporting clinker to Bangladesh, which can now no longer access that supply. Bangladesh’s second biggest supplier was Vietnam, but given its proximity to China, Vietnamese producers are selling clinker to China to meet its demand after those plant closures. That has opened up an opportunity for Pakistan companies to begin exporting clinker to Bangladesh. “Most of the Pakistani companies exporting clinker to Bangladesh are doing so via the sea route,” said Habib. The demand for clinker in Bangladesh has gone up and its prices have also gone up from $32 to $36, he added. Among the companies exporting to Bangladesh are Lucky Cement, Attock Cement, and D.G Khan Cement. “It’s a good breathing space for Pakistani cement manufacturers to export our surplus clinker to Bangladesh and other parts of the world,” Habib said. “We are also exporting cement to
India, Sri Lanka, Bangladesh, Afghanistan, African countries and some other small countries. Cement exports to India and Afghanistan is via road and ships. The monthly export of cement to India is around 70-75,000 tons,” he claimed. The cement plants located in northern part of the country have road access for exporting cement to India and Afghanistan, but if the plants from southern areas will try to export, it would be out of their price range owing to the low profit margin, he claimed. According to a rough estimate, 45,000 to 50,000 tons per day cement is being smuggled into Pakistan through the Iran border. The government is doing nothing to control the smuggling in Balochistan, he claimed. Power Cement, Attock Cement, Lucky Cement, DG Cement, Pioneer Cement, Bestway Cement, Cherat Cement, Gharibwall Cement and Maple Leaf Cement are in expansion mode in Pakistan as local consumption and exports are increasing. Total demand for cement in fiscal 2018 was 41 million tons in the domestic market. In addition, the industry exported a total 4.75 million tons. Total installed cement production capacity in Pakistan is 49.4 million tons, thus bringing the industry’s capacity utilization to 92.8% in fiscal 2018. With financing from both local and foreign loans, Power Cement has built
an integrated plant with clinker capacity of 7,700 tons per day and cement capacity of 9,600 tons per day or 3.4 million tons per year. Habib said that if the government were to increase infrastructure spending, local cement producers will, instead of exporting, sell their cement in local markets as the margin on cement in local markets is much higher compared to exports. Power Cement Limited markets and sells its Black Bull Cement, Blue Star Cement, and Estate Cement brand in Pakistan. Its product portfolio includes ordinary Portland Cement, Sulphate Resistant Cement, Portland Blast Furnace Slag Cement, and Grounded Granulated Blast Furnace Slag.
Financial performance
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he Arif Habib Corporation, the parent company of Power Cement, recently invested an additional $11 million into the
company. According to a notification sent to the Pakistan Stock Exchange (PSX), Power Cement is exploring the possibility of installing components/ machinery which shall make its plant energy efficient and is currently in negotiations with potential suppliers to finalize the agreement on a deferred payment basis. This guarantee amount by Arif Habib Limited, will enable Power Cement Limited (PCL) to negotiate a better deal with the potential supplier as AHCL shall guarantee the deferred payment to support the functionality, operations and growth of the associated undertaking, i.e. Power Cement Limited and will thereby earn commission on its non-funded exposure. The decision would be made via a Special Resolution at an Extraordinary General Meeting of Arif Habib Corporation Limited, which was held on September 26, 2018. Earlier, the PCL was obtaining for-
HABIB SAID THAT IF THE GOVERNMENT WERE TO INCREASE INFRASTRUCTURE SPENDING, LOCAL CEMENT PRODUCERS WILL, INSTEAD OF XPORTING, SELL THEIR CEMENT IN LOCAL MARKETS AS THE MARGIN ON CEMENT IN LOCAL MARKETS IS MUCH HIGHER COMPARED TO EXPORTS
eign financing worth 30 million Euros from Deutsche Investors for its ongoing expansion project of 7,700 TPD clinker productions. This amount of 30,000,000 Euro’s being obtained by PCL would cover loan principal amount of Euro 15 million including borrowing cost and all other charges to be accrued during the tenor of the loan. “All investment has been made in the form of funds, which are utilized for purchasing of machineries doing civil work etc,” one of the top officials at Power Cement said. Other than equity, local investment includes Rs 12.1 billion, financed by the National Bank of Pakistan (NBP), Habib Bank Ltd (HBL), Faisal Bank Limited (FBL), The Bank of Punjab (BoP), Al Baraka Pakistan Ltd, Bank Alfalah, Dubai Islamic Bank (DIB), Askari Bank, First Oman Investment Co, and the First Credit and Investment Pakistan Ltd. Investment worth Rs 4.1 billion is being financed by overseas organisations, including the Islamic Corporation for the Development of the Private Sector (Saudi Arabia), OFID, OPEC Fund for International Development (Austria) and DEG – Deutsche Investors. Equipment is being supplied by FLSmidth Europe while TEPC China is working as the construction contractor.
CEMENT DEMAND
FROM RAGS TO RICHES,
CHASING THE PAKISTANI DREAM The story of a man who took the world head on and is winning while coining a new phenomenon ‘the Pakistani dream’ By Eleazar Bhatti
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ost of us are well versed with the phrase ‘the American dream’, we have heard it a million times on television and in movies, moreover we have seen it in action through the likes of Bill Gates, Steve Jobs, Mark Zukerberg, Elon Musk, Jeff Bezos and so on, who rose from virtually nothing to creating a legacy that will impact the generations to come. James Truslow Adams, an American writer and historian, describes it as, “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement regardless of social class or circumstances of birth.” Simply put the American dream is the core definition of hard work and dedication that allows one to rise above one’s circumstances.
“AFTER WORKING WITH LARGE GLOBAL COMPANIES LIKE SCHLUMBERGER, The makings of a dreamer PWC, ORACLE AND SAP, ajjad recalls that like any other I REALISED THAT NOT Pakistani student of his time he A SINGLE GLOBAL OR wanted to become an engineer as it was deemed as one of the REGIONAL BRAND CAN top professions. Pursuing his dream TRACE ITS ORIGINS TO Sajjad joined University of Engineering and Technology (UET) in Lahore which PAKISTAN. I WORKED was shut down after two weeks due IN THE SOFTWARE to a murder at its campus. Not letting that influence his destiny and with a SERVICES AND ERP never give-up attitude, Sajjad made the trip to the land of opportunities and SECTOR, SO PROVIDING embarked on his degree in Electrical SAP AND ORACLE ERP Engineering from Rensselaer Polytechnic Institute Troy, New York. During the SERVICES BECAME A course of his degree Sajjad discovered NATURAL CHOICE” his passion for computers and switched Interestingly Sajjad Syed has his own version. A man just like any other who had a dream and who ultimately made it happen. But in Sajjad’s case it was not the American, but the Pakistani Dream.
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his major. Subsequently in 1993 he graduated with a Bachelor of Science in Computer and Systems Engineering. During his degree Sajjad says, he worked on some high end technologies such as computer graphics and the internet, considering that the internet was barely a thing back then. Later that year he took on his first job as a Junior Field Engineer at Schlumberger Oil Field Services where he served for 5 years ultimately parting ways as a General Field Engineer managing operations in Eritrea, U.S., U.K., Dubai, Yemen, Oman, and Pakistan. He jokes that during his time at Schlumberger his mother used to laugh at the fact that the areas and countries he worked in were either only mentioned in the Holy Quran or were mentioned by Sajjad himself. In 1998, he migrated back to Pakistan and as luck might have it, he was among the founding members of the
Sajjad Syed, ExD CEO board at the Punjab Information Technology Board (PITB). At PITB, Sajjad was instrumental in getting Oracle Corporation to invest $20 million in Punjab and then ran the programme that was awarded the Global Best Practice by Oracle Corporation. Sajjad fully cemented his feet into IT consulting when he joined PwC where he led the technology team that delivered some very challenging projects working with the Government of Guam. He then joined Oracle as Regional Business Manager responsible for Enterprise Resource Planning (ERP) business in Pakistan, Sri Lanka, Bangladesh, Maldives and Bhutan. After Oracle, Sajjad joined SAP as the Managing Director for Pakistan and established SAP
“OUR PHILOSOPHY BEHIND PROVIDING WORLD-CLASS TRAINING IS THAT WHILE THERE IS A LOT OF UNEMPLOYMENT IN THE COUNTRY, THERE ARE ALSO A LARGE NUMBER OF UNEMPLOYABLE PEOPLE IN THE COUNTRY. QUALITY HUMAN CAPITAL IS OUR BIGGEST CONSTRAINT. SOMEHOW, IN OUR EDUCATION SYSTEM, WE HAVE COMPROMISED QUALITY OVER QUANTITY”
as a major ERP player in the market. In 2010, Sajjad having realised that he wanted a change decided to embark on a new journey. So with a mere $2,500 in his pocket, he brought together a team of young professionals and kick started Excellence Delivered (ExD). Today, ExD is a household name for a large number of local and international corporations and institutions, providing them with IT services. ExD employees over 300 consultants with offices in Denver, Dubai, Riyadh, Doha, Lahore, Karachi and is looking to expand into Toronto, Melbourne and Kuala Lumpur in the near future. The company provides IT services to over 12 industries, servicing the likes of Warid, Engro, Allied Bank, MCB and so on.
Excellence Delivered
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ajjad told Profit that he founded ExD on the belief that a global brand can originate from Pakistan. “After working with large global companies like Schlumberger, PWC, Oracle and SAP, I realised that not a single global or regional brand can trace its origins to Pakistan. I worked in the software services and ERP sector, so providing SAP and Oracle ERP services became a natural choice,” he says. “In the ERP services sector, we saw a huge opportunity due to the quality of service delivery and track record of the local and regional players. The larger established players were not focusing on the local market and the price to quality ratio left much to be desired. With this in mind, we set out to create a global company with an aim to deliver an exceptional value to our
INSIGHT
Panasian Group, the exclusive partner of Volvo, Hilti, Bombardier and Rhinos in Pakistan, signing Excellence Delivered (ExD) to implement SAP ERP across the group customers.” Eight years on ExD is slowly but surely becoming a global company, “We are well on our way to becoming a global company; we now have clients spread across four continents and have now gone far beyond our initial set of services and are currently breaking into mobile development, Internet of Things (IoT), security services, outsourcing and a host of other services.” “But still ERP is our bread and butter. As we stand today, around 6070 percent of our revenue comes from it. The second would be application development, what we call mobility.
Third would be ecommerce, and fourth would be training.” “When we started, our first contract was in Pakistan, but very early on, we started focusing on the Saudi Arabian market. We wanted to focus on the international market because rates were better; also Saudi economy was growing in 2010. We picked Saudi Arabia over Dubai because Dubai was very competitive and it paid off as well,” he explains. “Throughout this journey Pakistan also remained our focus because we got a lot of manpower from here and because of our international business,
“IN THE ERP SERVICES SECTOR, WE SAW A HUGE OPPORTUNITY DUE TO THE QUALITY OF SERVICE DELIVERY AND TRACK RECORD OF THE LOCAL AND REGIONAL PLAYERS. THE LARGER ESTABLISHED PLAYERS WERE NOT FOCUSING ON THE LOCAL MARKET AND THE PRICE TO QUALITY RATIO LEFT MUCH TO BE DESIRED. WITH THIS IN MIND, WE SET OUT TO CREATE A GLOBAL COMPANY WITH AN AIM TO DELIVER AN EXCEPTIONAL VALUE TO OUR CUSTOMERS” 32
we were able to get a lot of talent here. Then the oil crisis happened in Saudi Arabia; and we had to write-off a significant amount of money. But luckily, our business from Pakistan had grown enough at that point in time for us to compensate for the losses in Saudi Arabia.” Sajjad proudly boasts the fact he has been blessed with an exceptional core team from the very beginning, which he has managed to retain. According to him ExD is not like other tech companies. Almost everyone in the company is a shareholder and enjoys the same perks and the performance of one employee directly and indirectly affects every single person working in the organisation and ultimately the company’s success. During his interview with Profit his belief in his four key core values resonated in almost everything he said. “ExD is my passion, it is not just a company for me. I believe that as long as the management is capable, and there is willingness and hunger to succeed, we will continue to succeed.” Interestingly, ExD was not built on an innovative model, but rather it was built on a ‘me too’ model. ExD was doing what its competitors had success-
fully done for decades. Sajjad believes that it was the four key core values that elevated ExD to where it stands today. “Number one for us was customer centricity - something that was lacking in the monopolistic market and thus gave us the opportunity to fill that gap. The other core value was unflinching integrity, which did affect our business in the short-term but has paid off really well in the long term. Third is superior profitability. And fourth is the passion in our workforce. We turn people around too, because in our country, I see a lot of young people choosing careers not because they love them, but because they do not have a choice. We give young people the opportunity to go into any of the verticals within the firm.” When talking about people, Sajjad says that at any given point in time the human resource and training department trains around 200 young professionals. He argues that the pakistani youth is willing to work and it is not a matter of willingness but the skill set. “We need to hire around 40 people right now but we cannot find the right candidates to fill the positions. The education system in Pakistan is seriously flawed, our students are not well equipped and trained. It is not about cheap labour anymore; companies are willing to pay the premium for well trained employees rather than volumetric hirings. So to address the epidemic we have created our own training centres. We heavily subsidise our trainings in partnership with ACCA and other companies allowing us to recruit only the best.” “Our philosophy behind providing world-class training is that while there is a lot of unemployment in the country, there are also a large number of unemployable people in the country. Quality human capital is our biggest constraint. Somehow, in our education system, we have compromised quality over
Excellence Delivered (ExD) in partnership with SAP organized a SAP NOW event in Karachi focusing on the new strategies that are a part of the SAP 2020 vision. quantity. This is true not only for the IT professionals but also others. But I do see some initiatives by the government and some efforts in that direction. If they can do it in short to medium term, I see our industry benefiting.” “Having said that I firmly believe that a lot needs to be done. There are a couple of key reasons that we need to focus on education. One is the huge youth population bulge that needs to be handled. Second, education needs to be among government priorities for investment, specifically for the IT industry, where young talented youth and relevant skill-sets are the only inputs we require compared to the traditional sectors.”
Systematic Rigging, fighting the tax regime
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he system is rigged against the young and the bold, the entrepreneurs and the dreamers, says Sajjad. Companies and countries are never built on freelancing
IN PAKISTAN THE SERVICE SECTOR IS TAXED AT REVENUE NOT AT PROFIT AND WE ARE REQUESTING THE GOVERNMENT TO CHANGE THIS. IF A TREE IS GROWING AND YOU PUT EVEN A LITTLE PRESSURE ON IT, IT WILL NOT SURVIVE; BUT ONCE ITS GROWS YOU CAN EVEN CLIMB THAT TREE. IN PAKISTAN WE ARE NOT LETTING OUR YOUNG ENTREPRENEURS GROW”
and incubators, but nations are built on systems, innovation and constant progression. “In Pakistan the service sector is taxed at revenue not at profit and we are requesting the government to change this. If a tree is growing and you put even a little pressure on it, it will not survive; but once its grows you can even climb that tree. In Pakistan we are not letting our young entrepreneurs grow. We have three major issues; education, taxation and government procurement policies that force young companies out of business.” Sajjad says that ExD is happy to put its accounts on the table for the government to review and tax it accordingly. According to him increased taxation is leading to reduced tax collection since businessmen are moving out to tax havens. There is a famous saying - Give a man a fish and you feed him for a day, teach a man to fish and you feed him for a lifetime. Currently Pakistan is spending money and energy on making businesses cheaper whereas it should not worry about the cost and should focus on providing the right tools to them. If they are taxed appropriately and given public projects and contracts business will boom and small younger companies will become large corporations. Sajjad argues that India started educating the masses in the 70s and now Pakistan cannot compare its industry with theirs. “A small Indian company called Capgemini technology services has its own airport which is bigger than Lahore airport. On the other hand, we have been unable to even make our national airline profitable.”
INSIGHT
Panasian Group Chairman Konoz Mohiuddin and Vice Chairman Ziber Mohiuddin along with ExD CEO Sajjad Syed holding SAP flag to mark their partnership for SAP implementation. Pakistan’s tax on revenues went from 2 per cent to around 25 per cent in one year. There’s a 16 percent sales tax followed by a minimum tax of 8 percent. The natural consequence of high taxation has been the shift of the industry to Dubai - hence actually bringing down the tax revenue of the sector. In the last two years, a large number of Pakistan’s mid-sized companies have moved to Dubai, which has been a significant source of brain drain for Pakistan. “Pakistan tried making a National IT Policy two to three times, but of little or no avail. The challenge is that IT is not just one sector; it has sub-sectors like telecoms, services, software development, etc. You need an enabling
environment for them,” says Sajjad. “While you need bigger companies, you also need to nurture small companies and startups in the IT sector. If we want to change our IT industry, we need to change our government procurement practices. The way our procurement policies work today, small companies cannot bid on half of the government projects. Thus if you want to bring a change in the IT sector, you either need to set aside a chunk of business for startups and younger companies, or tweak your procurement practices that enable them to bid for good projects. Startups are not encouraged by setting up incubators; they get nurtured when you get them business and sales opportunity.”
“WHILE YOU NEED BIGGER COMPANIES, YOU ALSO NEED TO NURTURE SMALL COMPANIES AND STARTUPS IN THE IT SECTOR. IF WE WANT TO CHANGE OUR IT INDUSTRY, WE NEED TO CHANGE OUR GOVERNMENT PROCUREMENT PRACTICES. THE WAY OUR PROCUREMENT POLICIES WORK TODAY, SMALL COMPANIES CANNOT BID ON HALF OF THE GOVERNMENT PROJECTS” 34
Currently, Pakistan government’s procurement practises seem rigged. To be able to get a contract a company needs at least five to ten years of experience, so 80 per cent of young companies get kicked out from the procurement procedure. Moreover, the process is so lengthy and painstaking that sometimes time sensitive projects have to be awarded in house. For example PITB developed a dengue application which needed to be launched in two weeks. If the organisation had given the contract to a third party the procurement process would have taken more than four weeks and the application would have taken over 6 weeks to complete. By that time dengue virus would have already infected thousands. “The bottom line is that the IT sector does not need subsidies but requires an enabling environment. People employed in the IT sector bring in an average of $25,000 into the country compared to a mere $2,500 in the textile industry, which in retrospect is heavily subsidised and also gets tax rebates. The IT sector is desperate to grow and can very well be the answer to Pakistan woes, we only need one great idea to change the course of this country forever.” Sajjad concludes.
INSIGHT
OPINION
Faraz Khalid
We have come a long way, the wrong way! here was a time, not too long ago, when mankind exhibited a remarkable level of intelligence. It was a time when technology was feeble and officious behaviour was frowned upon. Human interaction was genuine and in-your-face, rather than superficial behind the avatar quips that we have now accepted as normal and natural. During that time, the philosophers delved into the intricacies of meaning of life, poets captured the soul of existence, scholars explored the unknown, and people in general tended to understand ideas of complex nature outside their own sphere of work. Normal people like us led a rather unhurried life, contemplated on things of varied nature and discipline, travelled for months without the fear of routine, and dived into adventures which only a perpetually liberated soul could fathom. Honour and class were well recognized and appreciated. Frivolous talk was disregarded. Even jesters exhibited uncharacteristic astuteness disguised within simplistic undertones.
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Faraz Khalid The writer is Country Credit Head, Retail Banking, UAE, at Standard Chartered Bank
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CRITICAL THINKING IS INTRODUCED IN PATCHES, ONLY TO CARVE OUT A FEW WHO CAN ADVANCE THE TECHNOLOGY TO THE NEXT LEVEL. INSTEAD OF TECHNOLOGY WORKING FOR US, WE NOW WORK FOR THE TECHNOLOGY
Then, as the modern life started to take its shape, things changed. Our lifestyle took a sudden and sharp turn, almost as when the whistle blows marking the end of recess in a primary school. Mankind moved away from lakes, rivers and villages and started living in congested, polluted and densely populated cities. Houses were reduced to diminutive cabins. Routine took over. Everyone started working hard, resolving, rather pointlessly, to chase certain always elusive target. And everyone started to feel under privileged. Now, working hard was not a new phenomenon for human beings. Mankind has been known to work hard for thousands of years to ensure its survival in Earth’s cruel ecosystem. But working hard while doing nothing more than mundane repetitive work within the confines of congested, over-polluted and routine driven city life; that was new. And it immediately took its toll on human beings, both physically and mentally. Physical appearances began to change. People became short in height, weak in eyesight, lethargic in appearance and weedy in substance. Our muscles were replaced with body fat, and sharp wit was replaced with tiresome talk. It was as if we took it upon ourselves to meddle with our collective soul that we had been saving for centuries. Off course mankind invented ways to artificially deal with this situation. To combat never-ending lethargy, we started indulging in sugar overdose. Soft drinks, energy drinks, caffeine, vitamin tablets, more caffeine, more drinks. To combat loneliness, we invented social media. Real life excitement was replaced with comic books, TV dramas and films. Soon, mankind became a machine-kind. Which leads us to today’s
world, where routine is the overbearing rule of life. We wake up, we do the chores, we work hard, usually for someone else, who is working hard for someone else, we do our things, we go to sleep. This cycle goes on throughout our lives. We hardly sit and ponder. We hardly have time for anything. We don’t explore much. We rarely read. Our discussions with acquaintances are reduced to work-life anecdotes, frivolous jokes and mundane entertainment. A break for a few months to change the routine is never feasible. And it all starts from the very beginning. At schools, we are taught to excel in routine, and follow the scripted instructions. Critical thinking is introduced in patches, only to carve out a few who can advance the technology to the next level. Instead of technology working for us,
OUR DISCUSSIONS WITH ACQUAINTANCES ARE REDUCED TO WORK-LIFE ANECDOTES, FRIVOLOUS JOKES AND MUNDANE ENTERTAINMENT
we now work for the technology. We have indeed come a long way - the wrong way. Gone are the days when an Aristotle would put forward a profound notion which will transform a generation. Now our intellectuals are television celebrities who cannot render a single sentence without hyperbolic overtones, who get dismayed at the slightest of contest or question, and whose understanding of life is drawn from industrialised pop culture rather than uninhibited cognitive discourse. Today’s Waris Shah does not spend an epoch contemplating on the timeless beauty of his beloved. Today, he plainly and briefly introduces the beloved’s superficially molded appearance and then mulls over the imagined snags that come his way. Today’s intellectuals tend to be politically correct and emotionally mundane, always delivering carefully crafted sentiments which lack punch and resolve. Our writers do not carve out a complex world of multidimensional human beings. At best, they conceive an array of narrowly structured, uni-dimensional characters, and feed us with “superhero” oriented simplistic dilemmas, which should not have mattered to
EVERYONE STARTED WORKING HARD, RESOLVING, RATHER POINTLESSLY, TO CHASE CERTAIN ALWAYS ELUSIVE TARGET. AND EVERYONE STARTED TO FEEL UNDER PRIVILEGED begin with. Our attention span is as short as a few sentences of a tweet. Social media relies more on pictures rather than words. Plastic is preferred over gold. In other words, a cognitive void has been created, leaving most of the mankind feeling lost and dazed. With the above state of being, it will be indeed very interesting to see if the mankind can now find its way back to normal and natural. Back to the genuine anxiousness, rather than robotic happiness - the ability to imagine, ponder, create and excel. It will not be easy but will surely be an interesting journey from where we stand today.
ENTREPRENEURSHIP