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10
10 Weekly Roundup 14 How Zahoor Sarwar made energy conservation his business
18 18 The heir to Agha Hasan Abedi 25 Customs Today: the fake news portal used to threaten global shipping companies in Pakistan
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28 Habib Bank makes the pivot towards FinTech 32 Facebook, privacy, and the impact on Pakistani e-commerce
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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 ZulďŹ qar 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: proďŹ t@pakistantoday.com.pk
CONTENTS
welcome
THE DANGERS OF MISINFORMATION It used to be that companies would hire public relations firms to manage their image in the media by trying to put the best possible spin on the truth about their businesses. It appears that far too many companies these days are having to hire public relations professionals not to make the case for their business, or effectively articulate their position, but to refute flat out lies about them put out by a variety of unscrupulous actors who have taken advantage of the democratisation of publishing for their own ends. The internet has unmistakably been a positive force in terms of access to information. Anyone who owns a smartphone – and it is increasingly easy to own one – can access most of the world’s information at their fingertips within a moment’s notice. That is unquestionably a good thing. And the internet has also broken down barriers to publishing: instead of high costs associated with setting up a printing press, employing reporters, editors, fact checkers, researchers, and support staff, and then selling and distributing newspapers and magazines, anyone with an opinion and an internet connection can publish their thoughts. And thanks to the advent of social media, those rantings and ravings look no more or less credible than the very serious work put out by prestigious publications.
FROM THE MANAGING EDITOR
That is where we start getting into too much of a good thing. The latest victim of these kinds of campaigns of smears and lies in Corporate Pakistan are the local subsidiaries of global shipping companies which appear to be the target of a blackmailing campaign by a group of toy importers who have taken to publishing false stories about these companies on a news website called “Customs Today”, which purports to be a serious news website about all things relating to shipping and ports in Pakistan, but which appears more recently to be serving as the personal mouth piece of this group of importers. We cannot remedy the situation for those shipping companies, but we can offer our hope that readers will make more of an effort to be wary of such peddlers of fiction guised as fact. For in the end, it is not just the subject of the lies who suffers, but also the reader, who will find themselves misinformed, and therefore worse off, about crucial decisions in their lives.
Farooq Tirmizi Managing Editor
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QUOTE
“Efforts are being made to introduce drip irrigation, mechanised farming, hybrid seeds to upgrade agricultural sector”
“Wheat is not being purchased at the support price and poor families are suffering a lot” Minister for Petroleum Ghulam Sarwar Khan
Pakistan Ambassador to China Masood Khalid
Rs141.93b
worth projects were approved by the Central Development Working Party (CDWP) and referred two projects, worth Rs140.96 billion, to the Executive Committee of the National Economic Council (ECNEC) for further approval. The projects presented for approval were related to agriculture and food, physical planning and housing, energy, transport and communications, health, information technology, and science & technology sectors. In addition, two position papers were also presented during the meetings. In the agriculture and food section, a project titled ‘Upgradation of Arid Zone Research Centre (AZRC)’ and the establishment of an ‘Adaptive Research-Cum-Demonstration Institute’ were approved with Rs691.564 million by the CDWP. It was informed that the project would focus on poverty alleviation through the introduction of improved agricultural technologies in the rehabilitated environment of the project areas. The research centres would also strengthen the linkages with provincial and international research organisations. In the physical planning and housing sector, CDWP referred the Lahore Water and Wastewater Management Project, worth Rs67,503.625 million, to ECNEC.
$20b
may be Pakistan’s oil import bill for FY19 if current prices prevailed said, Shell Chief Executive officer Haroon Rashid. Mr Rashid was speaking at the Energy Forum 2018 and recommended the government to lengthen the oil credit facility from the existing 30 days to 90 days which would delay payment of $2 to $4 billion during a period when the country was seeking a bailout from the IMF. He shared Pakistan’s oil sector had undergone a major change since previously only three oil marketing companies were operating, which had now increased to twenty-five. The Shell CEO said if the oil pipeline infrastructure was overhauled in Pakistan, it would contribute to a windfall of $50 to $100 million which would be passed on to consumers. Previously, high-speed diesel (HSD) was being transported through the pipeline and now motor gasoline will also be pumped through it. As per Mr Rashid, the country had average stocks of twenty-days and recommended storages need to be established via joint-ventures to bolster the capacity. He claimed Pakistan was selling gasoline at the lowest rates compared to the rest of the world, however, the question was whether it could amass more taxes on its sale.
10
60pc
of work has been completed for the provision of Wi-Fi and tracking system by Pakistan Railways in their trains to provide better facilities to the passengers across the country. “Initially, all passenger trains will have the facility of Wi-Fi, tracking and after that these facilities will also be given in the freight trains,” an official in the Ministry of Railways said. He said that most of the work for the provision of Wi-Fi and tracking system has been done and remaining will be completed shortly as Minister for Railways Sheikh Rashid Ahmed is very much concerned about providing these facilities. The official said that overseas Pakistani was offering free of charge services regarding software and other related instruments for providing Wi-Fi and tracking facilities in passenger trains. “Passengers will shortly be able to use free internet services via Wi-Fi while travelling with Pakistan Railways,” the official added. He said that these steps will improve the status of Pakistan Railways and make trains journey more pleasant and safer for travellers. To a question, he said Railways was planning to launch new Rehman Baba train service, the feasibility of the new service was under process as it is only economy class that meets the need of the poor.
“Expansion of local manufacturing especially of the automobile industry, will highly benefit the country.” President Arif Alvi
QUOTE
Rs1b
in additional revenue has been generated by Pakistan Railways in the first fifty days of the present PTI government, said Railways Minister Sheikh Rashid Ahmad. “During the period from August 2017 to October 2017, Pakistan Railways earned Rs5.7 billion, while from August 2018 to October 2018, Pakistan Railways had earned Rs6.7 billion,” the statement said. “It is a proof that the Minister for Railways is taking the department on the right track,” he added. During the period under review, the capability of Pakistan Railways to earn revenue had increased and the minister for Railways was working hard to increase the revenues, the statement said.
107th
was Pakistan’s ranking, falling by one place in the new Global Competitiveness Index 2018 report released by the World Economic Forum (WEF). The country was ranked at 106th in last year’s Global Competitive Index and it dipped by one place to 107th out of a total of 140 countries this year. According to the report, Pakistan was placed at 93rd for infrastructure; 127th for ICT adoption; 109th for institutions; 103 for macroeconomic stability; 125th for skills; 31 for market size; 56th for business dynamism; 75th in innovation capacity; 89th for financial system; 122nd for financial system; 121st for labour market. Pakistan obtained the worst score in the area of freedom of press attaining 112th ranking and in judicial independence was ranked at 70th, whilst in budget transparency, its score was 77. The report stated the GDP per capita stands at $1541.1 and ten-year average annual GDP growth rate at 3.6 percent and five-year average FDI inflow as a percentage of GDP at 0.7 percent. Regards to terrorism incidence, Pakistan was placed at the bottom pit.
$6.5m
cyber-attack was experienced by BankIslami. BankIslami ATM cardholders and online users reported irregular activity and multiple unauthorised international transactions. n a notification to the Pakistan Stock Exchange (PSX), BankIslami stated that it detected certain abnormal transactions valuing Rs2.6 million on one of its international payment card schemes on the morning of October 27, 2018. Sources within the bank stated that the monies withdrawn from customer accounts is currently estimated at Rs2.6 million and has been deposited in the respective accounts. BankIslami’s Unit Head Corporate Affairs Muhammad Shoaib while talking to a section of the media said, “Transactions of approximately $6 million as claimed by international payment scheme are not acknowledged by the bank as the bank was actually logged off from the international payment scheme at that time.”
2.6pc
contraction was witnessed in Pakistan’s current account deficit in the first quarter (July-Sep) for FY19, touching $3.7 billion. The lower deficit was primarily due to 13.1 per cent yearly increase in remittances. During the quarter, the country’s imports were recorded at $13.8 billion, depicting an increase of 6 per cent. The growth in imports can be attributed to higher petroleum imports, as in the period Jul-Aug 2018, Pakistan imported $3.2 billion worth of petroleum products, up by a massive 52 per cent YoY. Similarly, in 1QFY19, exports rose by 3.6 per cent YoY to $5.9 billion which was due to higher textile and food exports. Despite the worsening trade deficit, which rose by 7.6 per cent YoY to $7.9 billion, the current account deficit reduced by $96 million YoY due to 26.5 per cent reduction in services deficit as well as 13.1 per cent YoY increase in remittances. Remittances rose to $5.4 billion supported by strong inflows from USA, Malaysia, UK and UAE.
0.86pc
increase was seen in Pakistan’s textile exports during the first quarter (July-September) of FY19, touching $3.285 billion against export’s worth of $3.257 billion during July-September (2017-18), according to data issued by Pakistan Bureau of Statistics (PBS). The products that contributed in positive growth in external trade included knitwear, the exports of which grew by 9.8 percent by going up from $646.8 million last year to $710.2 million during the corresponding period of the current fiscal year. Similarly, knitwear increased from yarn other than cotton yarn also increased from $7.588 million to $7.9 million, showing growth of 4.35 percent while the exports of cotton cloth witnessed a nominal increase of 0.09 percent as it rose from $528.6 million to $529.1 million.
BRIEFING
“Pakistan is looking forward to exporting textile and agricultural products through the China International Import Expo” Federal Commerce Secretary Younus Dagha
16.6pc
QUOTE
Rs63m
have been directed to be recovered from three importers of toys in Lahore and Malisi by a Cus-toms court. Also, the Customs court has levied a fine of Rs1.5 million on these three companies. The Port Qasim Customs authorities had filed a case against the importers for a wrong declaration of fin-ished goods (toys) as “parts” at the time of shipment clearance to avoid implementation of valuation rulings and avail benefits of lower duty and tax rates. According to sources in the Customs, these three importers were regularly erroneously declaring the description of toys in the past to avoid payment of actual taxes on their imports.
Rs63.577b
were disbursed by the government under its Public Sector Development Programme (PSDP) 2018-19 for various ongoing and new schemes against the total allocations of Rs 675 billion. The released funds include Rs 37.3 billion for federal ministries and Rs 12.8 billion for special areas, according to latest data released by the Ministry of Planning, Development and Reform said. Out of these allocations, Rs 2.78 billion has been released for Communication Division (other than National Highway Authority) for which the government has earmarked Rs 13.9 billion under PSDP 2018-19. Railways Division received Rs 4.17 billion out of its total allocation of Rs 28.06 billion whereas Aviation Division received Rs 205.45 million out of its total allocation of Rs 3.6 billion. The government also released an amount of Rs 4.6 billion for various development projects of Higher Education Commission out of total allocation of Rs 30.9 billion, while Rs 4.7 billion have been released for Atomic Energy Commission.
surge was registered in Pakistan’s gross public debt during FY18 according to State Bank of Pakistan’s annual report on the “State of Economy”. According to the central bank, rising macroeconomic balances and widening of twin deficits had contributed to the acceleration of Pakistan’s debt accumulation. Consequently, the gross public debt rose by 5.6% to 72.5 percent of GDP by the end of June 2018 and similar trends were exhibited in government debt (public debt minus government deposits held with the banking system). The report stated the debt-to-GDP ratio remained higher than the 60% limit foreseen in the Fiscal Responsibility & Debt Limitation Act (FRDLA), 2005. “In absolute terms, gross public debt reached Rs 25.0 trillion by end-June 2018, showing an increase of Rs 3.5 trillion during FY18. More than half of this record accumulation in gross public debt in a single year was contributed by public external debt, which grew by 30.1%,” said SBP. The major rise in public debt was attributed to fresh disbursements from China, foreign commercial banks and proceeds from Eurobond/Sukuk issuance. Also, revaluation losses due to an appreciation of international currencies against the dollar and depreciation of PKR against the greenback contributed to this high growth in public external debt during FY18, said the central bank. Moreover, from this Rs2 trillion expansion in external public debt, approximately Rs1.1 trillion addition was due to the local currency’s depreciation against the US dollar and appreciation of major currencies against the greenback. However, the central bank said a “large share of external debt still comprises of concessionary loans from multilateral agencies, it may pose challenges for future debt servicing when looked in the context of the rising global interest rates and stressed external account position.”
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Rs14m
loss per day was being incurred by Utilities Store Corporation (USC) before procurement got halted. As per the written reply of the Ministry for Industries and Production, all USC stores across the country are running into losses. “The corporation has to pay an amount of Rs8.303 billion to private vendors and Rs26.991 billion to the Trading Corporation of Pakistan,” the letter read. The NA was further told that against the total liability of Rs35.294 billion, USC has receivables of Rs21.251 billion from the Finance Division for payments to TCP and an inventory of only Rs3.839 billion as on quarter ending September 2018, which also included damaged and expired stock worth Rs313.82 million.
“Pakistan’s energy sector offers huge investment potential; UAE can benefit from investing in this area” Minister for Planning, Development and Reform Makhdoom Khusro Bakhtiar
42pc
QUOTE
$30b
are being projected as Pakistan’s gross financing requirements for FY19 by rating agency Moody’s. According to the rating agency, the current account deficit for FY19 would total 4.6% of GDP which would be slightly narrower than the 5.8 percent deficit clocked in FY18. It said an International Monetary Fund (IMF) programme would be credit positive for Pakistan because of access to a cheap, stable source of external financing would provide immediate assistance to the government’s external financing requirements. Moody’s said support and technical assistance from the Washington-based lender would assist macroeconomic rebalancing and the government’s structural reform agenda.
$200m
has been raised by Middle-East based ride-hailing service Careem which operates in Pakistan and many other countries. A source close to the deal told the latest investment gave the ride-hailing company an estimated valuation of over $2 billion. Careem was estimated to be worth around $1 billion as of December 2016. Dubai-headquartered Careem, the main regional rival of Uber Technologies, said it expected to raise a total of over $500 million in its latest funding effort to expand into mass transportation, deliveries, and payments. “Internet-enabled services are having a profound and positive impact on our region, where the consumer internet opportunity is huge and untapped,” said Careem Co-Founder and Chief Executive Mudassir Sheikha in a statement. Careem, founded in 2012, says it has 30 million registered users in over 120 cities in the Middle East, North Africa, Turkey, and Pakistan. The $200 million came from existing investors which includes Saudi Arabian billionaire Prince Alwaleed bin Talal’s Kingdom Holding, Al Tayyar Group, STV, and Japanese e-commerce company Rakuten.
decline in direct investment was registered in the first quarter of FY19 and stood at $439.5 million as compared to $762.2 million in same period last year – a difference of $325.7 million, said a report issued by the State Bank of Pakistan (SBP). In September 2018, the country had received $151.3 million only under the head of direct investment as compared to $195 million in received in the same month last year, the report noted. The total investment stood at $254.3 million after declining 60.1 per cent during the same period. Moreover, the country received inflows of foreign direct investment to the tune of $610.4 million in last three months, while investors pulled back $170.9 million during the same period, according to the data released by the SBP. According to analysts, the overall situation of the economy is not good in the country which is evident from the fact that the stock market lost between 2,000-3,000 points in last 15 days. They further predicted that the foreign investment may likely be at the lower side during the next few months. The market analysts further said that the federal government has raised the gas charges and the regulatory duty on the import of 570 products, which will further hamper the country’s growth. Furthermore, the foreign private investment of the country stood at $254.2 million, down by 63 per cent during July-September, compared to $687 million in the same period last year. During the first quarter of 2018-19, the SBP has recorded outflows of $185.3 million in the head of portfolio investment (equity securities), down by 137 per cent compared to last year’s outflows of $78.2 million in the same period. During the period, the SBP received an amount of $0.1 million in the head of foreign public portfolio investment (debt securities), an increase of 100 per cent during the first quarter of the current fiscal year, the data said.
97.2pc
surge in petroleum group exports was witnessed in the first quarter of FY19 compared to corresponding period of last year. The export of petroleum group rose to $145.8 million in JulSept of the year 2018-19 from $73.9 million in the same period of the previous year, according to the latest data of Pakistan Bureau of Statistics. According to breakup figures, petroleum crude’s export rose to $76.2 million this year from $33.1 million during the corresponding period of last year. Similarly, the export of petroleum products (excluding top Naphta) also surged to $45.8 million from $33.1 million, showing an increase of $77.98 per cent. The export of petroleum top Naphta also registered an increase of $57.1 million during the period under review as it increased from $15.1 million to $23.7 million.
BRIEFING
HOW
ZAHOOR SARWAR MADE
Research Teck is focused on helping other businesses with their productivity enhancement and energy and environmental impact reduction needs
ENERGY CONSERVATION HIS BUSINESS By Muhammad Faran Bukhari
E
ntrepreneurs are by definition people who create and manage businesses for the purpose of generating profit. We at Profit, have in the past brought into light the success stories of entrepreneurs running profitable businesses and also the stories of those whose business ventures have not turned out too fruitful. On paper, the equation is simply maximizing the difference between revenue and expenses, yet, a surprisingly large proportion of businesses and entrepreneurs fail to achieve this.
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Imagine you are running a business that earns Rs1 million in revenues annually while employing 5 sales people at an annual salary of Rs100,000. You hire 10 new sales people at the same average annual salary and by the end of the year are able to increase your revenue to Rs2.2 million. By doing so you would add an additional Rs200,000 to your net profit but your profit margin would have reduced from 50 per cent to 32 per cent. This means that for every rupee of sale made the business now earns a profit of Rs0.32 compared to Rs0.50 that it was earning last year. Hence cost control is essentially one of the two pillars on which profit maximization stands. “Companies in Pakistan never used to focus on cost control, but since low cost manufactured products from China have increasingly become available in the market, only companies who move towards cost cutting will eventually survive,” says Dr Zahoor Sarwar, the Chief Executive Officer (CEO) of Research Teck, a company working on cost cutting, energy conservation and productivity enhancement in different industries. The company works on three basic concepts of lean manufacturing, kaizen, and 5S to achieve maximum cost control. Lean manufacturing is by definition a method for waste minimisation within a production or a manufacturing system without sacrificing productivity, while kaizen, a Japanese word for improvement, is a concept that focuses on continuously improving all functions in an organisation. Similarly, the 5S’s in 5S, that is also a Japanese concept, translate to ‘sort’, ‘set in order’, ‘shine’, ‘standardise’ and ‘sustain’, focusing on the process of organising a work space for efficiency and effectiveness and sustaining the new efficient model for future cost savings.
Savings simplified
A
s a case in point, the company has recently worked with Millat Tractors Limited where they worked on the implementation of lean manufacturing techniques to reduce wastages and increase the safety of workers. “The implementation process was very gradual as the factory was very old and the labour union was very strong. We had to train the workforce and created a culture where the work-
“COMPANIES IN PAKISTAN NEVER USED TO FOCUS ON COST CONTROL, BUT SINCE LOW COST MANUFACTURED PRODUCTS FROM CHINA HAVE INCREASINGLY BECOME AVAILABLE IN THE MARKET, ONLY COMPANIES WHO MOVE TOWARDS COST CUTTING WILL EVENTUALLY SURVIVE” Dr Zahoor Sarwar, CEO of Research Teck ers themselves would be encouraged to work efficiently to cut down on costs,” Sarwar explains. As a result, the overtime consumed on tractors due to rework and rejections dropped from Rs1,633 per tractor to Rs828 per tractor in a time span of 18 months. “If you multiply the overtime saved per tractor with 45,000 (the amount of tractors produced), the saving comes down to around Rs40 million and this is only one saving among many others.” Similarly, the company has also worked with Master Group on energy conservation and was able to reduce electricity expenses by almost 68 per cent in a span of 10 months. In May 2015, Master’s electricity bill stood at Rs8.072 million which dropped to Rs2.672 million by February 2016. “When we started working with Master Group, they were operating with eight compressors, so we worked on controlling the air leakages. Once air leakages were controlled, the load on the compressors decreased and we were able to bring down the number from eight to three working compressors,” Sarwar explains. “We also introduced the concept of using sunlight instead of electric lights. They had a lighting system of around 125 kilowatts and we bought it down to 27 kilowatts,” he continues. “The three electricity phases are like car wheels, if they aren’t balanced they will consume more energy. Balancing the
phases properly results in almost a seven per cent saving in electricity costs.” Sarwar says that internationally, factories are obligated by law to undergo an energy audit every year. But such a law does not exist in Pakistan which has led to enormously high energy consumption in factories in Pakistan. “Our export-oriented industries are becoming uncompetitive in the international market because of high overheads. They have to work on reducing their manufacturing costs if they want to grow and enhance their exports despite the challenges provided by globalisation,” Sarwar argues, claiming that his company has helped various manufacturing factories achieve 25 to 70 per cent reduction in energy bills.
Giving carbon credits due credit
R
educing waste is not just good for profits but benefits the environment as well, in turn helping companies reduce their carbon footprint. World over, carbon credit markets are regulated by governments which give incentives to organisations for lowering their carbon content output. For example, a basic cap-and-trade scheme binds companies to an overall emission limit whereby if the emissions of a certain company fall below the allowable limit, it can sell the difference to a company that is exceeding its own emission allowance. This mechanism was formalized through the Kyoto Protocol, which is an international agreement signed by more than 170
ENTREPRENEURSHIP
Reserach Teck Team countries. “In Pakistan, people lack knowledge regarding carbon content and how they are measured. They are unaware of the concept of claiming carbon credits,” Sarwar says, insisting that local companies can and should use them to their advantage. “If factories focus on reducing their waste, they can lower their carbon emission and gain monetary incentives from the United Nations. Companies in Pakistan have turnovers amounting to billions of rupees but lack basic understanding regarding how to
properly utilise carbon credits.” However, not all hope is lost and manufacturing companies in Pakistan seem to be slowly catching up. In 2012, DG Khan Cement successfully registered their Waste Heat Recovery Project situated at Dera Ghazi Khan, with the United Nations Framework Convention on Climate Change (UNFCCC) for carbon credit. Similarly, Pakistan Tobacco Company (PTC) and Interloop have individually taken steps to monitor and reduce their carbon content emissions. Interloop’s sock production facility in
REDUCING WASTE IS NOT JUST GOOD FOR PROFITS BUT BENEFITS THE ENVIRONMENT AS WELL, IN TURN HELPING COMPANIES REDUCE THEIR CARBON FOOTPRINT. WORLD OVER, CARBON CREDIT MARKETS ARE REGULATED BY GOVERNMENTS WHICH GIVE INCENTIVES TO ORGANISATIONS FOR LOWERING THEIR CARBON CONTENT OUTPUT. FOR EXAMPLE, A BASIC CAP-AND-TRADE SCHEME BINDS COMPANIES TO AN OVERALL EMISSION LIMIT WHEREBY IF THE EMISSIONS OF A CERTAIN COMPANY FALL BELOW THE ALLOWABLE LIMIT, IT CAN SELL THE DIFFERENCE TO A COMPANY THAT IS EXCEEDING ITS OWN EMISSION ALLOWANCE 16
Faisalabad achieved LEED Gold certification from the United States Green Building Council. The company was able to achieve a 26 per cent saving in energy consumption, a 51 per cent reduction in potable water usage, and a 25 per cent enhancement in fresh air intake. “Other companies should learn from such examples and follow suit,” Sarwar says. Carbon trading is also being considered as a viable policy action by the Government of Pakistan. In January 2018, a national consultation was organized in Islamabad by the Ministry of Climate Change and the Collaborative Instruments for Ambitious Climate Action (CI-ACA) project, which is run by the United Nations Framework Convention on Climate Change Secretariat. Representative of as many as 60 public- and private-sector organization attended and agreed that carbon pricing is worth exploring as a way to reduce emissions and boost green investment. Based on the outcomes of the consultation, the Ministry of Climate Change planned to launch an in-depth technical study on a possible carbon pricing instrument for Pakistan. After the election of a new government in summer 2018, Malik Amin Aslam Khan who is considered a climate change expert with a focus on carbon finance has been named to lead the climate change ministry.
ENTREPRENEURSHIP
How Abraaj’s downfall has echoes of the earlier scandal of BCCI’s collapse, and how it might impact the place of Pakistanis in global finance
A
By Farooq Tirmizi
rif Naqvi is the most shunned man in Pakistani finance of the current era because Arif Naqvi failed at the one cardinal, inviolable, unspoken rule that governs the lives of every Pakistani who aspires to scale the heights of global finance: don’t become another Agha Hasan Abedi.
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In the power centers of the global capital markets – New York, London, Hong Kong – Pakistanis are not an underrepresented class of people. You can find at least a few Pakistanis at almost every level of every division of every major global financial institution. (We even have a small impact on the culture of Wall Street and the City of London. Once, while working late at night at the New York offices of Deutsche Bank, I suddenly heard the sound of Nusrat Fateh Ali Khan’s Tumhein dillagi bhool jaani pare gi. It turned that a colleague of mine was playing it on his iPhone to keep himself from falling asleep while pulling an all-nighter. He was not Pakistani, but had worked alongside enough Pakistanis to have become a fan of the qawwali maestro.) But nearly all Pakistanis who have ever worked in those institutions feel the shadow of one man, and a fervent desire never to be linked to his legacy: Agha Hasan Abedi, the founder of the now-defunct Bank of Credit and Commerce International (BCCI). When the scale and speed of the collapse of Abraaj Capital became known in the earlier half of this year, Arif Naqvi, its Karachi-born founder, was inevitably compared to Abedi. Naqvi may think the comparison unfair, but after everything that transpired, it was always going to be inevitable. Abedi and Naqvi are decades apart, with the latter starting his Dubai-based firm a decade after the former’s London-based bank collapsed. Abedi ran a bank with retail depositors, and Naqvi a private equity firm that catered almost exclusively to institutional investors and high net-worth individuals. The two did not cross paths in time and ran institutions that were very different in character in most ways. At least on the surface. The truth is that in many ways, Abedi and Naqvi are very, very similar, and the trajectories of both BCCI and Abraaj Capital
FINANCIERS
have considerable parallels as well. The core problem at both companies was the exact same: the larger than life personality of the founder, who viewed the company and its wealth as an extension of his own personal property, and had the charisma to get away with not having put in place enough governance controls to prevent the worst of his own behavior. Despite repeated attempts, Arif Naqvi declined to answer any of Profit’s requests for comment.
Middle class origins and the early rise
N
either Abedi nor Naqvi were born rich, but both were born in proximity to wealth and political power. Abedi was born in Lucknow, into a family that were not themselves aristocracy, but served as important advisors and courtiers to the Nawabs of Awadh until Partition, when they migrated to Karachi to become a part of the new country’s professional classes. Naqvi was born in the following generation as the fourth son of a successful businessman who owned his own small plastics manufacturing company, and was educated alongside Karachi’s economic and political elite at Karachi Grammar School. One key difference between the two men’s backgrounds: Abedi stayed local for his education, graduating from the University of Lucknow with a degree in law. Naqvi, by contrast, was able to jet off to the London School of Economics, from where he was able to give his career a more global orientation from the very beginning. Because Abedi never got a foreign education, his career started closer to home: he joined Habib Bank in 1946,
Agha Hassan Abedi Auditorium when he was just 24 years old, and the bank was just five years old, albeit owned by the Habibs, a wealthy trading family that had even back then been in business for more than a century. Abedi was clever, and had the good fortune of timing: Habib Bank was one of two local banks left operating in the territory that eventually became Pakistan at the time of Partition, which meant that the entire nation’s banking system was reliant on two (and soon four) banks for nearly the entirety of the first decade of its existence. But it was not just the advantages of that greenfield environment: Abedi proved himself to be a fast learner and
AS MUCH AS $660 MILLION WAS MOVED OUT OF INVESTORS ACCOUNTS WITHOUT THEIR KNOWLEDGE TO PAY FOR MONEY THAT NAQVI WISHED TO EITHER GIFT OR INVEST IN HIS FAMILY OR FRIENDS, ESPECIALLY HIS TWO SONS. ABRAAJ MOVED $200 MILLION OUT OF ITS INVESTORS ACCOUNTS INTO NAQVI’S PERSONAL ACCOUNT AT DEUTSCHE BANK, REPORTS THE WALL STREET JOURNAL. IT IS STILL NOT CLEAR WHAT JUSTIFICATION WAS USED TO DO SO 20
high performer, rapidly ascending the ranks of Habib Bank, and excelled at helping maintain the bank’s corporate relationships. Naqvi’s beginnings were similarly dominated by his early success in climbing the corporate ladder. He graduated from LSE in 1982 and began working for Arthur Anderson – then one of the largest accounting firms in the world – in their London office, where he spent four years. For a time, he moved back to Pakistan to work for American Express Bank in Karachi, before moving to the Middle East where he began working for the Olayan Group, one of the largest conglomerates in Saudi Arabia.
The entrepreneurial bug
D
espite being a high flyer, Abedi was not content to simply do well at a bank owned by someone else. He had an entrepreneurial drive, and in 1959, at just 37 years of age, was able to convince the ruling Nahyan family of the United Arab Emirates to invest in creating a fifth local bank in Pakistan – United Bank Ltd – with him as its first President. Naqvi got a slightly earlier started in entrepreneurship, when he was 34 years old. In 1994, having saved up
$50,000 from his time working for other people’s companies, Arif Naqvi decided to invest his own money into setting up a firm called Cupola, which he has described as an investment advisory firm, but was really more of a microcap investment bank and private equity firm, which helped other businesses raise capital while also seeking to make its own investments. Both men had spectacular success in their first entrepreneurial ventures, but both were accused of less than above-board behaviour in doing so, though the allegations against neither were ever substantiated. In the case of Abedi, he grew United Bank to become – for a time – the second largest bank in Pakistan. His very success attracted the ire of the leftist, anti-capitalism wave sweeping Pakistan’s political landscape in the later 1960s and early 1970s, and in 1972, Abedi was briefly placed under house arrest for alleged crimes remain unclear while the government prepared to nationalise United Bank. Abedi did not let neither his own house arrest nor the nationalisation of the bank he created get in the way of his ambition, though. While under house arrest, Abedi began plotting his next move, calling investors to secure capital and interviewing young candidates from the University of Karachi’s Institute of Business Administration (IBA) for jobs at a bank that did not yet exist. Eventually, the government of Pakistan dropped its charges, and Abedi was free to leave, and he instantly decamped to Abu Dhabi, and then on to London to create BCCI.
Abraaj Headquarters Naqvi’s initial success, by contrast, was a little more muted. His first deal earned him an $800,000 advisory fee for helping a company raise $8 million to set up duty-free kiosks in Dubai. He kept doing more deals, and eventually landed his first whale: a $102 million acquisition of Inchcape Middle East, a grocery chain. The transaction involved only $4.1 million in equity. The rest was all borrowed from banks. Naqvi was able to sell that business in pieces over the next couple of years for a total of $173 million. It is for this transaction that some of his initial investors in Cupola have accused Naqvi of impropriety, suggesting he was not entirely forthcoming in what proportion of the profits belonged to him versus what belonged to his investors. The allegations are
THE TRUTH IS THAT IN MANY WAYS, ABEDI AND NAQVI ARE VERY, VERY SIMILAR, AND THE TRAJECTORIES OF BOTH BCCI AND ABRAAJ CAPITAL HAVE CONSIDERABLE PARALLELS AS WELL. THE CORE PROBLEM AT BOTH COMPANIES WAS THE EXACT SAME: THE LARGER THAN LIFE PERSONALITY OF THE FOUNDER, WHO VIEWED THE COMPANY AND ITS WEALTH AS AN EXTENSION OF HIS OWN PERSONAL PROPERTY, AND HAD THE CHARISMA TO GET AWAY WITH NOT HAVING PUT IN PLACE ENOUGH GOVERNANCE CONTROLS TO PREVENT THE WORST OF HIS OWN BEHAVIOR
documented in a book titled “Leverage in the Desert” by Imtiaz Hydari. Nonetheless, the allegations were never substantiated, and Arif Naqvi went on to use the profits from that Inchcape transaction to create Abraaj Capital, arguably the first – and eventually the largest – professional private equity firm in the Middle East.
The troubles begin: lying about losses
T
he problem with trying to talk about what went wrong at BCCI to a Pakistani audience is that both BCCI and Agha Hasan Abedi have way too many defenders who peddle a completely fictional account of what actually happened at the bank. But essentially, the trouble at both Abraaj and BCCI started in exactly the same way: they started lying about losses, they hoped that future growth would preclude the need for them to ever disclose those losses, and that nobody would ever find out. And both BCCI and Abraaj Capital lied about losses for very similar reasons: to reveal the truth would involve turning off the supply of money to businesses owned by close friends and family of the founders, which was deemed unacceptable by the founders themselves, and never checked because the initial investors never asked for the creation of robust corporate governance structures that would have prevented such a thing from ever happening in the first place. In the case of BCCI, the prob-
FINANCIERS
lems began early, but were disguised because of a remarkably complex set of accounting tricks used by the bank to hide its problems, and by a rapid deposit growth that saw the bank become, at one point, the seventh largest private bank in the world. A report in The New York Times dated August 12, 1991, described the scheme in the following way: “A rapid growth route was big customers. And Mr. Abedi tapped his contacts in Pakistan for the biggest, the Gulf Group, a shipping and trading conglomerate owned by the Gokal family of Karachi. The relationship began in 1972 when the company made substantial deposits in BCCI. In 1976, according to Price Waterhouse documents, the Gulf Group began borrowing heavily from BCCI for trade financing and shipping loans. The following year, the loans had grown to the point that BCCI transferred the Gulf Group accounts from the London office to its Cayman Islands subsidiary, BCCI Overseas, to sidestep Bank of England restrictions on lending limits. But by 1978, the Gulf Group was in financial trouble and so were BCCI’s loans. To hide its losses, BCCI funneled money -- often unrecorded deposits -- from elsewhere in the bank into the Gulf Group accounts to make it appear that loan repayments were up to date when they were not. Frequently, the funds were routed through BCCI shell companies. Sometimes payment documents were simply faked.” Once the bank began to create both a culture and an infrastructure for lying about how much money it was losing to help out friends of Agha Hasan Abedi, there was no turning back. Once you have lied that much, you cannot then suddenly come clean and admit just how crooked your whole business model has been. And so the temptation becomes to continue lying and hope that future profits will wipe away past losses and thus nobody will ever need to know the truth. At BCCI, doctoring loan documents became a “full-time occupation”, according to the auditors’ report. Here is where things get worse. You see, the more your losses mount, the more incentive you have to try to hide them and seek to maximise future profits. That, in turn, leads to reckless decision-making, which in turn magnifies the losses and keeps making the
22
Aman Tower IBA Karachi situation even worse than when you started trying to cover it up. In the case of BCCI, that recklessness came in the form of derivatives trading. On a $20 billion base of assets, the bank started off investing $1 billion in cotton futures and other derivatives, but as the losses mounted, quickly grew that investment book to over $11 billion, in a futile gambling addict attempt to “win back the losses”. The bank lost hundreds of millions of dollars each year in this kind of trading activity. In Abraaj’s case, the lying started with the fact that the profits from Abraaj’s investments were not able to keep pace with the lifestyle and financing needs of Arif Naqvi and his family and friends. When initial reports came out about financial problems at Abraaj Capital, it was assumed that Abraaj simply had operational costs that exceeded its revenues in the normal course of doing business. However, a more detailed review of Abraaj’s financial documents and internal communications by The Wall Street Journal published last month reveals a much messier – and less flattering – picture. It shows Arif Naqvi treating not just Abraaj’s money, but also Abraaj’s investors’ money, as his own personal piggy bank to finance investments into his children’s and his friends’ businesses and frequent “loans” to himself made by Abraaj using not its own money but
that of its investors, who had entrusted the firm to invest it into businesses on their behalf. Those investors include the Bill & Melinda Gates Foundation and the United States government. As much as $660 million was moved out of investors accounts without their knowledge to pay for money that Naqvi wished to either gift or invest in his family or friends, especially his two sons. Abraaj moved $200 million out of its investors accounts into Naqvi’s personal account at Deutsche Bank, reports The Wall Street Journal. It is still not clear what justification was used to do so. To cover up its tracks, Abraaj relied on loans from banks or companies it had investment relationships with in order to make its financial statements look whole. For instance, on November 30, 2017 the Gates Foundation asked Abraaj for bank statements from its healthcare fund in which they had invested money. On December 5, Abraaj borrowed $140 million from Air Arabia and $29 million from its own funds to deposit into the fund’s accounts. The money was returns to Air Arabia and its treasury by December 15, but by that time Abraaj was able to produce a bank statement saying that it had the $170 million it needed to show in the fund’s account on December 7, 2017. There were times, reports the WSJ, when Abraaj did not have money to pay employee salaries and still priori-
PARALLELS AND DIFFERENCES BETWEEN ABRAAJ CAPITAL AND BCCI
BCCI
ABRAAJ CAPITAL
Founder’s hometown
Karachi (born in Lucknow) Karachi
Founder create first business at age
37 years
34 years
Initial investment
$2.5 million
$116 million
Initial investors
Gulf Arab families
Gulf Arab families
Founder tenure at firm
16 years (1972–1988)
16 years (2002–2018)
Years in existence
19 years (1972–1991)
16 years (2002–2018)
Assets at its peak
$20 billion
$14 billion
Number of offices
400 20
Number of employees
14,000 350
Founder’s hobby
Poetry
Art collecting
Legal domicile
Luxembourg
Cayman Islands
Actual headquarters
Abu Dhabi, then London Dubai
Founder’s famous American politician friend
President Jimmy Carter
Secretary of State John Kerry
Founders embezzled money?
Yes
Yes (allegedly)
Creative accounting to cover tracks?
Yes
Yes (allegedly)
Use new investments to pay off older investors?
Yes
Yes (allegedly)
Denied wrongdoing?
Yes Yes
Ultimate fate
Liquidation Liquidation
Founder’s philanthropic donations to Pakistan
~$8 million (~$20 million today)
tised the personal needs of Arif Naqvi. And Profit has learnt through a source familiar with the matter that money was frequently moved back and forth between Abraaj’s client funds and the trust funds of Arif Naqvi’s sons, named Coronation I and Coronation II.
The philanthropic legacy
I
n addition to their finance careers, both Abedi and Naqvi fancied themselves philanthropists and patrons of the arts. For Abedi, his preferred art form was poetry, and for Naqvi, it is painting and sculpture. But more than their patronage of the arts, one thing clearly animated both men:
visible philanthropy in Pakistan. Abedi’s philanthropy was geared mainly towards education and healthcare. He helped fund the creation of what is now known as the National University of Computer and Emerging Sciences, and funded part of the creation of the Ghulam Ishaq Khan Institute of Engineering Sciences and Technology, arguably Pakistan’s leading engineering school. In healthcare, his Infaq Foundation helped finance the operations of Sindh Institute of Urology and Transplantation, the National Institute of Cardiovascular Diseases, and Lady Dufferin Hospital.
~$100 million
Arif Naqvi’s philanthropy was also focused on similar areas, with a slightly greater emphasis on healthcare through the Aman Foundation, which was primarily an ambulance service that also offered other healthcare programs and services. In education, the Aman Foundation helped fund the construction of the new city campus for the Institute of Business Administration in Karachi. But while Abedi’s philanthropic legacy lives on in the form of the Infaq Foundation, the Aman Foundation’s survival is in question. Sources familiar with the matter say that the foundation’s headquarters in the upscale
FINANCIERS
Abraaj Art Prize E.I. Lines Area of Karachi – bought in 2010 for a reported Rs400 million ($5 million at the time) – has already been sold off, as have many of its ambulances. Abedi was unquestionably a crook, but so many in Pakistan have continued to benefit from his philanthropy, long after his death in 1995, that it is somewhat unsurprising, if still infuriating, to see him being defended against the now proven charges of financial malfeasance. The charges against Naqvi are still unproven, though the evidence appears to be mounting. How will he be regarded by Pakistanis, now that it looks like his philanthropic venture may not survive his business?
The fate of Abraaj’s investments in Pakistan
A
braaj’s two biggest investments in Pakistan are in K-Electric, and in Byco Petroleum. Many of Abraaj’s supporters point to the delays in the sale of Abraaj’s stake in K-Electric as the reason behind Abraaj’s collapse, and indirectly blame the government of Pakistan for Abraaj’s demise. The argument goes that had Abraaj been able to realise the profits from the K-Electric sale, it
24
would have been able to pay back all of the money it moved from its investors’ accounts. This assertion may or may not be true. What is absolutely true, however, is that Abraaj would not have collapsed had it never moved money out of its investors’ accounts without their permission in the first place. They were engaged in such complicated accounting at Abraaj and had such little by way of corporate governance (the head of corporate compliance was Arif Naqvi’s brother in law) that, sooner or later, they were going to get caught stealing from their clients. Abraaj argues that they did not steal, merely borrowed. That distinction may help Naqvi sleep better at night, but the fact of the matter is that Abraaj broke their investors’ trust. And trust, ultimately, is the only currency that matters in finance. As for K-Electric, Abraaj’s share in the company will eventually be sold, though sources familiar with the matter say that Shanghai Electric – still considered the likeliest buyer – will ask for a $300 million discount off the initially agreed-to $1.7 billion price tag. There are similar reports about Byco Petroleum, with sources telling Profit that the Abbasciy family, who own the majority stake in Byco, have
ESSENTIALLY, THE TROUBLE AT BOTH ABRAAJ AND BCCI STARTED IN EXACTLY THE SAME WAY: THEY STARTED LYING ABOUT LOSSES, THEY HOPED THAT FUTURE GROWTH WOULD PRECLUDE THE NEED FOR THEM TO EVER DISCLOSE THOSE LOSSES, AND THAT NOBODY WOULD EVER FIND OUT been begging Abraaj to sell them the private equity firm’s stake, and Abraaj had been refusing. The Abbasciys had been raising capital to make an enticing offer – reportedly north of $250 million – for Abraaj’s share in Byco, though that number is now expected to be substantially lowered as Abraaj exits all of its investments in the form of a distressed sale.
CUSTOMS TODAY: THE FAKE NEWS PORTAL
USED TO THREATEN GLOBAL SHIPPING COMPANIES IN PAKISTAN
A group of toy importers has taken to planting untrue stories on a news website in a bid to blackmail major shipping companies into cooperating with their tax evasion scheme
B
By Arshad Hussain
acked by a dubious news organization, a “cartel” of local importers is blackmailing port users and operators in Pakistan, Pakistan Today has learnt. The companies affected by this blackmailing scheme include some of the biggest names in the global shipping industry, including Dubai Port World, International Container Terminal Services Inc., and Maersk Line of A.P. Moller. This blackmailing scheme has come light at a time when the newly-elected government of Prime Minister Imran Khan is aggressively wooing foreign investors to the dollar-starved country by making promises about ease of doing business in Pakistan. In a boost to the government’s efforts, the World Bank’s recently-released Ease of Doing Business Index moved Pakistan up by 11 points, from number 147 to 136, on its rankings. Among the steps recognized by the World Bank to improve Pakistan’s competitiveness is that the Karachi port also made importing and exporting easier by developing a new container
THE COST OF CORRUPTION
terminal and enhancing its customs platform for electronic document submission. The five-member cartel consists of importers One Ten World, Xing Enterprise, Lucky Traders, an unregistered freight forwarding firm named Global Logistics Company, and an online news portal ‘Customs Today’. The importers appear to be involved in misdeclaration and under invoicing of imported goods to evade applicable customs duties worth millions of rupees at Port Qasim and Karachi Port Trust (KPT). Port sources say that the companies have been involved in tax and duty evasion on importing toys for several years. In one such case in July, the importers evaded taxes amounting to Rs 1.98 million. The importers have been misstating the nature of their consignment – under-invoicing children’s toys – to evade up to 30 percent of customs duties. “They used to remove the wheels from a complete unit to deceive the customs department,” the source said. Meanwhile, the web portal Customs Today published defamatory news articles regarding the terminal operators and the port authorities to pressurize non-cooperative customs officials and praise
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Customs House Karachi high-ranking Federal Board of Revenue officials to curry favor with them. Recently, the website started a “defamation campaign” against Abdul Rasheed Sheikh, chief collector of appraisement at Pakistan Customs, and his team as retaliation for his orders to investigate the matter. Speaking on condition of anonymity, a customs official also corroborated this claim, saying that they have been facing this news “campaign” whenever they have caught the importers’ attempt to mis-declare and under invoice. The cartel also targeted international ports and shipping giants. In the short span of 17 days (from August 1 to 17, 2018), the website ran at least 17 news stories against different port users and operators including Qasim International Container Terminal of Dubai Port World and Maersk Pakistan. The stories appeared after the two entities started to charge the importers with port demurrages and ship detention for their cargo that was detained by the customs department on account of under invoicing and mis-declarations. “Maersk ship arrested, executives of QICT/DP World may also get arrested soon,” read a headline on the website on September 28, 2018. The deceptive and coercive
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nature of the importers’ cartel can be gauged from the fact that they wrote an application to Assistant Collector Customs/Licensing Hameer Khan requesting that the authority penalize the shipping line Maersk by cancelling its license to operate in Pakistan and also force the company to pay 100% Waiver of Container detention charges. The customs official, under pressure by the importers, sent a letter to Maersk while attaching the complaint letter as well as a Delay & Detention Certificate. The cartel then used this customs official’s letter not only to fabricate a news item for the website but also shared it with other news channels and newspapers, claiming that “customs authorities” are considering cancelling the license of Maersk in Pakistan. This claim was later clarified by Maersk Pakistan through an official clarification. In its reply to Khan, Maersk Pakistan stated that they had not collected any charges on account of demurrage from the complainant that needed to be refunded. Demurrage charges are collected by the Port Authority & terminal operators in case delivery of cargo is not claimed within the period when importers can collect items free of charge. “It is clearly stated on the face
of the carrier’s Bill of Lading that all destination charges, including THC (if not prepaid), are payable at destination by Merchant (as defined in the terms & conditions) as per local tariff,” the letter states. Hence, complainant’s contentions are also incorrect that any charges collected by the carriers are illegal as they are not mentioned in the Bill of Lading, which is a detailed list of a shipment of goods in the form of a receipt given by the carrier to the person consigning the goods. Terming the contents of complaint filed by the importer M/s. One Ten World as incorrect, false, defamatory, and based on a misrepresentation of facts, Maersk Pakistan clarified to customs authorities that the complainant suppressed the fact that the respondent vide its letter dated 04.10.2018 had replied to all the allegations levelled by the complainant. Maersk said that it was incorrect and false that the delivery order or the no-objection certification (NOC) has been held by the respondent. The fact is that the delivery order and the NOC was issued on 03.09.2018 upon submission of Original Bill of Lading and import charges as per Maersk’s local tariff. Maersk also claimed that at the
time of issuance of the delivery order, the complainant, along with contractual consignee of carrier’s Bill of Lading M/s. Global Logistics & Transporter R.B. Brothers, jointly and separately furnished an indemnity bond on stamp paper that they would return the containers within five days from the date of passing the gate in sound condition. They also agreed to pay all accrued container detention & damage charges (if any) in case they fail to return empty containers within five days free of charge. Maersk informed customs authorities that it was incorrect that the complainant M/s. One Ten World or its shipper/seller booked this shipment at Load Port Qingdao, China, with their principal Maersk Line as the carrier. “In fact, the shipment was booked by M/s. Sun Star Industries and consignee in Pakistan is Global Logistics Co.,” they said. “As such it is totally false that the complainant or its seller had booked this container with Maersk Line. There is no privacy of contract between Maersk Line & complainant. On request of Freight Forwarder M/s. Global Logistics Co. being the contractual carrier of the complainant, M/s. One Ten World was manifested in Customs Import Manifest as ‘consignee’ vide House Bill of Lading of the said Freight Forwarder,” Maersk letter states. The Maersk Pakistan letter concludes: “Since the issuance of the delivery order till 28.09.2018, neither have we received any intimation/explanation from the complainant for its failure to take delivery, nor any written request for waiver of any kind of charges along with any kind of customs delay-detention certificate for carrier’s consideration on commercial grounds.” The letter ends with Maersk categorically rejecting the complainant’s contentions as incorrect, false, and baseless in view of legal grounds and
Karachi port actual facts. “This is part of the harassment and blackmailing unleashed by the freight forwarder M/s. Global Logistics Co. through its website and purportedly the actual beneficiary of these ‘toys’ importers,” the letter states. The contractual consignee of the Bill of Lading, freight forwarder M/s. Global Logistics Co., also owns/runs the web news portal Customs Today. Before furnishing the waiver letter as mentioned previously, the consignee started a defamatory campaign against the carrier and terminal operator using the website for an attempt to blackmail Maersk Pakistan. Industry sources say that M/s. Global Logistics Co., using the same locus operandi, successfully blackmailed the other terminal operators and carriers to force them to waive the container detention charges against the delay-detention certificate that were later withdrawn by the competent authority. Various defamation suits
MAERSK SAID THAT IT WAS INCORRECT AND FALSE THAT THE DELIVERY ORDER OR THE NO-OBJECTION CERTIFICATION (NOC) HAS BEEN HELD BY THE RESPONDENT. THE FACT IS THAT THE DELIVERY ORDER AND THE NOC WAS ISSUED ON 03.09.2018 UPON SUBMISSION OF ORIGINAL BILL OF LADING AND IMPORT CHARGES AS PER MAERSK’S LOCAL TARIFF
have already been filed by carriers and terminal operators in connection with these practices. They said that All Pakistan Shipping Association (APSA) also raised its concerns in the media regarding blackmailing by the freight forwarder and the web news portal. “APSA is gravely concerned at the heinous and libelous campaign that is relentlessly being conducted by an unregistered tabloid website ‘Customs Today’ for the past two months,” an APSA official told Pakistan Today. “The same [news items] are being reproduced by other news outlets against member shipping lines, terminal operators, and their respective principals, directors and employees.” APSA, while strongly condemning the malicious, concocted and baseless campaign, regretted that despite repeated requests to regulatory bodies – the Pakistan Electronic Media Authority (PEMRA), the Ministry of Port and Shipping, and the Federal Investigation Agency’s Cybercrime Wing – the authorities have failed to take any action to stop this spread of malicious and false allegations by this unregistered website. ASPA also requests President Arif Alvi and Prime Minister Imran Khan, the Minister of Maritime Affairs Ali Zaidi, as well as the Honorable Chief Justice of Pakistan to take suo motu notice of these baseless and defamatory allegations against world-renowned and respected shipping companies and terminal operators that have heavily invested and are operating in Pakistan.
THE COST OF CORRUPTION
Pakistan’s largest bank announces a big push into branchless banking, investments in technology infrastructure
T
Our correspondent
he year 2017 was not a good one for Habib Bank. It was accused of having insufficient controls to prevent money laundering by the New York State Department of Financial Services and effectively forced out of the United States by a state regulator determined to crack down on financial malfeasance. What’s more, the bank’s earnings took a massive hit owing to the $225 million fine it had to pay as a settlement. Needless to say, heads rolled at the top, and CEO Nauman Dar was shown the door.
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Enter Muhammad Aurangzeb, the veteran global corporate banker who was appointed CEO of Pakistan’s largest bank on April 30 of this year. Right off the bat, Aurangzeb has tried to strike a different tone, which may have been influence by his experience as a senior banker in East Asia. Aurangzeb is an alumnus of the Wharton School at the University of Pennsylvania, from where he earned both his bachelors and his MBA. He started his career in Pakistan at Citibank, moving with Citi to the United States before returning to Pakistan to spend an extended period of time at ABN Amro, where he eventually rose to become Pakistan Country Manager. Having hit the ceiling at ABN Amro in Pakistan, Aurangzeb then moved to the Dutch bank’s global headquarters in Amsterdam. Following the acquisition of ABN Amro by the Royal Bank of Scotland in 2007, Aurangzeb moved to Singapore, to help lead the RBS corporate banking team in Southeast Asia. He was then hired away by JPMorgan, the venerated American banking giant, in Singapore where he worked in the corporate banking division and was the head of JPMorgan’s Asia Pacific corporate banking business when he was tapped to become the CEO of Habib Bank. Since joining Habib Bank, Aurangzeb has sought to strike a different tone than his predecessors. He made waves in Pakistan’s financial markets when, during an interview with Bloomberg in October, he said: “From my perspective, we have to start thinking that we’re an IT company with a banking license.” This was completely unexpected. Most Pakistani bank CEOs pay lip service to their technology infrastructure, and the need to invest in it, but Aurangzeb appeared to be turning the matter completely on its head: that for a bank to survive in the 21st century consumer financial market, they must cease to think of banking as the core service and instead assume that technology will drive consumer behaviour and decisions far more than financial products will. Aurangzeb backs up his view with numbers: “With 1,700 bank branches and 2,000 ATM’s all over the country, HBL acquires 1 million new customers a month. With the rollout of biometric devices nationwide that number is set to double or triple,” he said. One key area of focus is branch-
HBL Tower- The bank’s new state of the art building in Clifton Karachi less banking, a service that brings together operational efficiencies through the better use of mobile technology, as well as an integration of the bank’s user interface with their customers’ needs: most consumers still deal with cash, and ATMs are more expensive to set up that simply establishing a relationship with neighbourhood corner stores throughout the country. Habib Bank’s branchless banking platform is called Konnect, and management states that it currently has approximately 32,000 agents nationwide, serving a client base of over 900,000 people. The bank estimates that this number may quadruple in the coming year, with an estimated 3 million new customers expected to join the platform by the end of calendar year 2019.
Given the bank’s estimates of signing on approximately 12 million new client accounts a year, that means that Konnect – the branchless banking platform – will account for a quarter of all new accounts opened at the bank with the largest branch network in Pakistan. In October, Habib Bank also finally got rid of one key irritant for its digitally savvy customers: it integrated the mobile and web browser based systems. Previously, the mobile app and the bank’s website had completely different systems that required completely different usernames and passwords. Clients often found it difficult to remember which username and password combination worked for which element of the bank’s digital banking offerings, which was a pain point for
FINANCIAL TECHNOLOGY
many. With the integration of its online systems, Habib Bank is seeking to displace Standard Chartered Bank Pakistan – long seen as the market leader in online banking in Pakistan – from the top spot. In many ways, the pivot towards a better digital presence began even before the new CEO’s arrival. As Branding in Asia reports, the bank hired Abrar Ahmed Mir as the first Chief Innovation & Financial Inclusion Officer for Habib Bank, the first hire of its kind for any bank in the country. The strategy appears to be twofold: get customers to focus their high-volume, low-value transactions on the digital and branchless banking platforms, and only use the branches for high-value, low-frequency transactions. The goal is to optimise both the bank’s operational efficiency and cost basis, as well as improve the customer experience by offering multiple convenient options for clients to conduct their transactions. The market appears to be responding favourably to Habib Bank’s pivot towards technology. “We believe the technology transformation in mainstream processes would assist the bank’s expansion and provide HBL with an edge over its peers,” wrote Amreen Soorani, a research analyst at JS Global Capital, an investment bank, in a note issued to clients on Tuesday, October 30. Nonetheless, the bank’s legacy infrastructure is not going to be easy to transform. Habib Bank has the largest branch network in the country, with more than 1,700 physical locations nationwide. Much of this infrastructure
“WE BELIEVE THE TECHNOLOGY TRANSFORMATION IN MAINSTREAM PROCESSES WOULD ASSIST THE BANK’S EXPANSION AND PROVIDE HBL WITH AN EDGE OVER ITS PEERS” Amreen Soorani, Research Analyst at JS Global Capital
30
“FROM MY PERSPECTIVE, WE HAVE TO START THINKING THAT WE’RE AN IT COMPANY WITH A BANKING LICENSE. WITH 1,700 BANK BRANCHES AND 2,000 ATM’S ALL OVER THE COUNTRY, HBL ACQUIRES 1 MILLION NEW CUSTOMERS A MONTH. WITH THE ROLLOUT OF BIOMETRIC DEVICES NATIONWIDE THAT NUMBER IS SET TO DOUBLE OR TRIPLE” Muhammad Aurangzeb, CEO Habib Bank Ltd was inherited by the bank from the days when it was a state-owned entity making massive politically-motivated loans at the behest of senior government officials and politicians and not investing at all in its infrastructure. However, because of State Bank regulations that govern financial inclusion, banks are not allowed to close branches in an area where there is no
other bank branch within a certain radius. Since Habib Bank has the largest number of branches, it also has the most branches that serve currently underbanked regions of the country. That means that Habib Bank has the least flexibility when it comes to trimming the size of its branch network. And there is also the fact that while the bank is likely to be able to use technology to improve its deposit growth, it will likely have a hard time deploying those deposits productively into loans, as has been demonstrated by the bank’s balance sheet for every quarter since the second quarter of 2011: the bank’s lending to the government through its purchases of Treasury bills and Pakistan Investment Bonds (PIBs) has exceeding the entirety of its lending to the private sector. While the most recent quarter saw a relatively faster rate of growth for non-government loans relative to the overall asset book, the fact remains that Habib Bank, like the banking sector overall, is highly exposed to government borrowing, which means the government’s fiscal policies have a far more direct effect on the bank’s financial health than most businesses. The bank’s CEO may like to think of Habib Bank as a tech firm with a banking licence, but the task of making such a large organisation transform its culture is likely to be a challenging undertaking.
FINANCIAL TECHNOLOGY
FACEBOOK, PRIVACY,
IMPACT ON PAKISTANI
AND THE
E-COMMERCE The global tech giant’s troubles may seem far removed from local concerns, but Pakistani Facebook users need to be more vigilant, says digital rights activist By Shoaib Pervaiz
O
nce a digital phenomenon, an online buzzword, and a place where students competed for the number of friends they had, Facebook appears to have been undertaken by competitor social media platforms such as Snapchat and Facebook-owned Instagram and Whatsapp. Research says that these platforms are more popular with younger internet users, a demographic once dominated by Facebook.
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“FACEBOOK PROVIDES A PLATFORM FOR ALL INDIVIDUALS TO NOT ONLY EXPRESS THEIR OPINIONS BUT ALSO RUN THEIR BUSINESSES. HOWEVER, SOMETIMES THE DATA THAT IS BEING SHARED ONLINE THROUGH FACEBOOK IS OF EXTREMELY SENSITIVE NATURE, WHICH IS WHY IT IS VERY IMPORTANT FOR FACEBOOK TO REALIZE THE IMPACT THAT ITS PRIVACY POLICIES HAVE ON ITS USERS, ESPECIALLY IN POLITICALLY-CHALLENGED COUNTRIES LIKE PAKISTAN” Nighat Dad, Founder, Digital Rights Foundation Where did Facebook go wrong? It’s a combination of what experts have called “hypergrowth”, unpopular product enhancements and bad publicity in the aftermath of the Cambridge Analytica scandal. From the recent data privacy scandal to the infighting between senior executives in the company which plummeted investor confidence, Facebook is in dire need of an image overhaul.
Has Facebook become too large?
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eeing Facebook’s growth, it seems as if everyone is a user. Indeed, Facebook reported a total of 2.2 billion global users by the end of March 2018. This might be both a blessing and a curse for Facebook: when you ask teenagers why they use Instagram or Snapchat more than they use Facebook, their answer is usually the same – “Our parents are on Facebook, and maybe even our grandparents. We don’t want them to see what we post.” Facebook remains extremely popular in Pakistan, where 44.6 million people are connected to the internet through mobile phones and/or computers. Of these, 35 million people use Facebook according to the Global Digital report prepared by We Are Social and Hootsuite that was released in April 2018. “Facebook is an integral part of not just our day-to-day lives but also e-commerce,” says digital rights activist Nighat Dad who founded the Lahore-based non-profit organization
Digital Rights Foundation.
Product enhancements that need work
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he year 2004 witnessed the birth of Facebook from the glorified halls of Harvard University. Two years later, the company launched a feature called the ‘News Feed’, which presented information collected from a user’s friends list in a single window. The feature, now considered extremely popular with Facebook users, shocked the platform’s users at that time who felt that it was a violation of their privacy. Founder Mark Zuckerberg issued an apology, saying, “We really messed this one up. We did a bad job of explaining what the new features were and an even worse job at giving [users] control of them.” Facebook had barely gotten over this hump when one year later in 2007, it launched “Beacon” with 44 partner websites. Beacon, which became a fundamental part of the company’s advertising system, sends data from external websites to Facebook to allow targeted advertisements. It also allows users to share their activities with connections. Beacon would report to Facebook on its members’ activities on third-party sites which were also participating with Beacon. These activities would be published to users’ News Feed. This would occur even when users were not connected to Facebook and would happen without the knowledge of the Facebook user. One of the main concerns was that Beacon did not give the user the option
to block the information from being sent to Facebook. When word got out and this feature became public knowledge, Zuckerberg was again forced to apologise, this time saying, “We simply did a bad job with this release, and I apologise for it. People need to be able to explicitly choose what they share.” Dad believes that this is a core problem that Facebook needs to tackle if it is to survive as a leading social media platform. “I don’t have any doubts about Facebook’s survival if they are more accountable and transparent to their users. Facebook needs to realize the huge responsibility it has towards its users and how data that is shared with them by the users is on the basis of trust,” she stresses. “The world was shocked when the Cambridge Analytica scandal happened and have still not really grasped the consequences of it. But this is the best time for Facebook to work on its data protection policies and ensure that their users’ privacy is not compromised.” When asked how aware the Pakistani population is regarding its online rights and digital security, Dad said Pakistanis have not yet realized the impact of how their data can be used against them. “We are just beginning to realize its impact by seeing very extreme cases of online violence in recent years,” she says. “Facebook provides a platform for all individuals to not only express their opinions but also run their businesses. However, sometimes the data that is being shared online through Facebook is of extremely sensitive nature, which is why it is very important for Facebook to realize the
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impact that its privacy policies have on its users, especially in politically-challenged countries like Pakistan.” After revealing that Cambridge Analytica had received unauthorized data on up to 87 million Facebook members and that nearly all Facebook users may have had their public profile scraped, Zuckerberg said, “We’re an idealistic and optimistic company. But it’s clear now that we didn’t do enough. We didn’t focus enough on preventing abuse and thinking through how people could use these tools to do harm as well. We are going to do a full investigation of every app that had a large amount of people’s data”. In the aftermath, shares plummeted; thousands deactivated their Facebook accounts, and the U.S. government got involved and eventually called Zuckerberg into a congressional committee hearing and demanded answers to questions everyone wanted to ask.
Can Zuckerberg use the hate to turn things around for the company?
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ollowing increased scrutiny in the United States and Europe after the Cambridge Analytica scandal, Facebook has made efforts to improve its ads and content verification practices particularly around elections. Ahead of the 2018 General Election in Pakistan, Facebook published a blog post detailing the steps they had taken to detect and prevent what they called “abuse” of the platform. In particular, they addressed their targeted ads feature which had received significant criticism for exacerbating political polarization by showing users political ads that corresponded with their political views gleaned through data that users
shared on their Facebook profiles. If the internet is to be designed, operated, and governed in a way that protects and respects human rights, we must all play our part. Companies, governments, investors, civil society organisations, and individuals – as employees of companies, as citizens of nations, as consumers of products, and as users of a globally interconnected internet – must all take responsibility and act. Corporate transparency and accountability are incomplete without transparent and accountable governments that fulfill their duty to protect human rights. Meanwhile, companies should be held responsible for all the ways that their products, services, and business operations affect user’s rights.
WHERE DID FACEBOOK GO WRONG? IT’S A COMBINATION OF WHAT EXPERTS HAVE CALLED “HYPERGROWTH”, UNPOPULAR PRODUCT ENHANCEMENTS AND BAD PUBLICITY IN THE AFTERMATH OF THE CAMBRIDGE ANALYTICA SCANDAL. FROM THE RECENT DATA PRIVACY SCANDAL TO THE INFIGHTING BETWEEN SENIOR EXECUTIVES IN THE COMPANY WHICH PLUMMETED INVESTOR CONFIDENCE, FACEBOOK IS IN DIRE NEED OF AN IMAGE OVERHAUL 42
Governments, regulatory bodies, digital rights and consumer protection associations worldwide are trying to scrape out balanced policies that can allow tech companies to continue to operate, and guarantee greater or perhaps, ‘complete’ rights and access to users of their own information. Governments must impose stringent regulations on companies which fail to protect people’s data from cybercriminals. Companies must employ experts to stop any data breaches or hacks on their systems. Users are often oblivious to the data being collected about them and what happens to this information. Providing personal data is a necessary evil for the convenience of accessing goods and services online. Consumers must automatically consent to requests for information and cannot always fully restrict the type of details that they hand over to advertisers and third-party websites. And when it comes to dealing with companies online, individuals are faced with the organisation’s privacy and the settings that it has determined. Facebook needs a drastic change in the way people use it. It needs change of a significant magnitude that makes people want to try out the new Facebook, know that their online activity is safe, and that they can depend on Facebook to not share it with anyone without their explicit consent.
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