Profit E-Magazine Issue 54

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11 Weekly Roundup 14 In a market dominated by Toyotas and Suzukis, a Porsche dealership thrives in Lahore

20 20 Engro’s Rs60 billion question 27 Pakistan’s Basic Billionaires Fahd Ali Sheikh

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28 The taxi driver in the age of Careem 36 Airbnb gains traction in Pakistan and no one has noticed

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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 Taimoor Hassan l Ghulam Abbass l Ahmad Ahmadani Shehzad Paracha l Haniya Javed l Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Illustrator: ZEB l Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

CONTENTS

welcome

THE FOURTH FACTOR In his now seminal tome The Wealth of Nations, Scottish economist Adam Smith posited that there were three major factors of production in an economy: land, labour, and capital. In more recent decades, economists have begun to argue that a fourth factor that should be considered is enterprise: the intelligence and risk-taking ability of the people who wield the capital and pull together the labour and land to produce economic output in the first place. In other words, you cannot simply get productive economic activity by putting together a bunch of people on lots of land with lots of money. How that money is allocated, and how competent the leadership of the economic organisations that result, is so important an ingredient in the success or failure of various economic endeavours that it deserves to be thought of as a factor of production in its own right.

Corporate Pakistan is currently learning that lesson in a very practical way these days with Engro Corporation taking on just that challenge: it has ample amounts of capital, and can put together enough talented people and buy enough land and physical resources to do just about whatever it wants. But if it is to be successful, it has to be deliberate and careful with how it chooses to spend its Rs60 billion pot of money, the subject of our cover story this week.

command companies and make capital allocation decisions are worthy of our admiration, argues author Fahd Ali Sheikh, in an opinion piece titled “Pakistan’s basic billionaires,” where he suggests that too many of Pakistan’s wealthiest individuals and families are concerned with industries of the past and not thinking about how to survive – let alone thrive – in a technology enabled future, and may be dooming Pakistan’s economic prospects with their lethargy.

As citizens of a democracy, we are often consumed with the actions of our political leaders and quick to hold them to account, if only in our conversations. But given how much power economic organisations have on our daily lives, perhaps questioning the decisions and judgement of those who command the heights of wealth and financial success in Pakistan is just as important. We hope, through this issue, to provide our readers with some of the tools to make that happen.

Farooq Tirmizi Having said that, not all those who

FROM THE MANAGING EDITOR

Managing Editor

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QUOTE

“There is a need to study the decline in the large-scale manufacturing sector that has contracted 1.75 in Q1”

“On the 101st day a dollar can buy 13 eggs instead of dozen” PML-N leader Miftah Ismail

Finance Minister Asad Umar

8.21pc

record devaluation of the rupee against the greenback rattled forex and capital markets as the rupee touched an all-time low of Rs145 before regaining Rs6 to close at Rs139.05 on November 30th.

Market sources attributed the sudden fall in the rupee to official commitments to the International Monetary Fund (IMF), though the government denies any such arrangement yet.Addressing the press in a bid to soothe investor sentiment later in the day, Finance Minister Asad Umar once again stressed that setting the currency rate was the central bank’s responsibility. He also blamed the current volatility on policies pursued by the Pakistan Muslim League-Nawaz (PML-N) government, saying the devaluation was inevitable because of ‘flawed policies’ of the previous administration. Umar claimed that the devaluation was necessary because of several reasons, including increased foreign loans, decreased foreign exchange reserves, low exports and an artificial cap on the value of the dollar. The finance minister said that rupee value cannot be controlled forever. “Even during the PML-N’s tenure, the value of rupee against the dollar had reduced by Rs28,” he said, adding that the government artificially increased the value of rupee by purchasing dollars. “As a result, we started importing vegetables and we were unable to export surplus sugar and wheat without providing a subsidy,” he said.

Rs4b

worth of smuggled items have been confiscated by Customs Intelligence during the first four months of the current fiscal year 2018-19. According to Customs Intelligence high ups, the government’s anti-smuggling departments last year had confiscated Rs25 billion worth items, out of which the Customs portion was Rs11 billion. The confiscated items included smuggled clothes, narcotics, cigarettes, tires and other items, they informed. The officials said that it was difficult to chain the monster of smuggling given the fact that the department only has 311 constables across the country. A study conducted by the customs department in July this year revealed that 59 per cent of the total demand for products of over half a dozen sectors of the formal economy, including petroleum, tea, mobile phones and auto parts industry, was met through illicit trade of smuggled goods. In 2014, the Model Customs Collectorate (MCC) Preventive, Karachi, investigated 13 commodities prone to smuggling in Pakistan. The collectorate came to the conclusion that illegal trade had adversely impacted 11 of the 13 commodities.

BRIEFING

Rs25b

subsidy has been sought by the Petroleum Division from the federal cabinet for supply of imported gas on subsidized rates to captive power plants. Sources in petroleum division informed Pakistan Today that although honourable Supreme Court (SC) in its decision in 2013 decided that the supply of gas to captive power plants should be revised to a lower priority and not at a subsidized rate, however, division (Petroleum) has now sent a summary to federal cabinet, seeking approval for supply of imported gas to captive power plants on subsidized rates. They said that the petroleum division has asked for a Rs25 billion subsidy for supply of imported gas to captive power plants for nine months.

Seeking approval from the federal cabinet for budgetary allocation of Rs25.75 billion as a supplementary grant under the demand of petroleum division for current fiscal year (CFY), petroleum division has also asked to allow Finance Division for the creation of subsidy head under the budget of petroleum division. The division said subsidy will be provided to both zero-rated industry and its captive power units as per the clarification of the ECC (economic coordination committee) of the cabinet.

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“The true potential of CPEC cannot be tapped without expanding the scope to industry and agriculture” Minister for Planning, Development and Reform Khusro Bakhtiar

QUOTE

Rs60b

tax evasion of the tobacco sector is going to be investigated by the National Accountability Bureau (NAB). The Auditor General of Pakistan (AGP) office said the cigarette industry was involved in tax evasion to the tune of Rs33 billion and recently the government fired six members of the tax regulator who were accountable for this loss to the national exchequer and moved them to different ministries. And the Federal Board of Revenue (FBR) was unable to attain its revenue target from the cigarette sector, which is a major provider to the public exchequer because of the introduction of third slab of federal excise duty (FED), which caused a revenue loss to the tune of Rs60 billion in last three years.

Rs2b

of outstanding claims have been directed to be released to the sugar mill owners by the Economic Coordination Committee (ECC) of the cabinet to Finance Division. With regard to the outstanding claims of previous years, the committee directed the Finance Division to release the budgeted amounts. Sources said that Pakistan Sugar Mills Association (PSMA) had claimed the outstanding payment to the tune of Rs16 billion, whereas the Ministry of Industry and Commerce gave an approval to release only Rs2 billion. The forum approved the export of an additional 0.1 million tonnes of sugar. The government had earlier approved the export of one million tonnes of sugar.

However, owing to high cost, sugar mills did not export the sugar. It is pertinent to mention that Pakistan Muslim LeagueNawaz government had allowed sugar mills to export 3.2 million tonnes of sugar in five years. Besides, the previous government had also given more than Rs20 billion subsidy to sugar exports.

$1b

bilateral trade is being targeted by Uzbekistan with Pakistan in the next five years. Uzbekistan is all set to become the biggest trading partner of Pakistan from Central Asia as the bilateral trade between the two countries has improved from $36 million in 2017 to over $90 million in 2018. Uzbekistan has over $500 million bilateral trade with Afghanistan and with more serious efforts from both sides, Uzbekistan and Pakistan have the potential to increase the two-way trade volume up to $1 billion in next 5 to 6 years. This was observed by Ambassador of Uzbekistan Furqat A. Sidikov while addressing business community here at Islamabad Chamber of Commerce and Industry (ICCI).

$384m

economic loss was incurred by Pakistan last year due to extreme weather events last year. Meanwhile, Bangladesh suffered a loss of $2.8 billion, India lost $13.7 billion, Sri Lanka lost three billion dollars, and China lost $30 billion, said China Global Television Network (CGTN).

Asian countries are facing the most damaging impacts of rising temperatures, factors that are expected to lead to a large number of deaths and massive economic losses. On a global scale, Puerto Rico is at the top of the chart and five Asian countries are among the top ten worst-affected countries due to extreme weather events. However, China is now ranked at 31st, a significant improvement from last year’s ranking of 12th. The index ranked countries on the basis of financial loss and the number of deaths expected due to extreme weather events. Globally, more than 526,000 people died as a direct result of more than 11,500 extreme weather events in 2017, and the economic losses due to climate change between 1998 and 2017 amount to around $3.47 trillion, according to the report.

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Rs3.5t

have been added to Pakistan’s debt burden after the latest devaluation, said former finance minister Ishaq Dar while talking to a news channel.

Participating in a TV’s programme from London, Dar said it was a high time to take some administrative and fiscal steps to save the country from the economic debacle. Claiming that the present government’s economic policy had “failed completely”, Dar said Pakistan was about to join the G20 because of its economic rise during the tenure of the PML-N government, however, the PTI government had reversed the progress. Dar was of the view that the devaluation of the Pakistani rupee in the recent months was “cruel and unnecessary” decision and that it was deliberately taken to adversely impact the progress achieved in the past when he was at the helm of affairs.

BRIEFING

Demand for luxury car in Pakistan is rising, and would rise faster if the government changed its import regulations, says Abuzar Bokhari

By Taimoor Hassan

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A

ll young men grow up with some passions.

For some its sports, for others it’s travelling.

And then there are some who love cars.

While some of us are able to keep that love alive, others lose it mostly to financial distractions and sometimes simply because it is considered inconsistent with societal ideals of how successful individuals should think.

That was not the case with Abuzar Bokhari, the founder and CEO of the only Porsche dealership in Pakistan, based in Lahore, who was able to keep his passion for cars alive even though he spent most of his professional life in textiles and consulting, and eventually managed to comfortably retire to this original passion. In the words of Bokhari, his ardent love for cars came from his father, a car enthusiast.

“My grandfather was also a car lover so growing up between people who loved cars, it was an easy passion to follow,” Bokhari told Profit as he sat in his chic office which displayed many accolades that Porsche Pakistan bagged.

Porsche presence in Pakistan was provisionally launched in 2006 and then formally launched in 2008.

Since then, it has been in successful operation and has grown significantly.

Bokhari credited the Musharraf Administration for its ‘very smart’ policies to allow them to raise a brand like Porsche in Pakistan and make it successful and commercially viable.

Initially, Bokhari started off with two partners but continued alone with the venture when Porsche formally entered the Pakistani market. Bokhari was able to win the dealership over established businesses that were also vying to bring Porsche in Pakistan under their banner. “The reason I was able to win over others was because I was passionate about cars. That made me stand out I think,” Bokhari said in his thick voice.

Porsche: an ideology

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riving has been a part of human existence for well over a century.

Porsche has been in existence a little over 70 years, but Dr. Ferdinand Porsche, who came up with the company, was associated with the

industry from the early onset of motorcars. In fact, the first electric–hybrid car was built by Dr. Porsche by the turn of 20th century. According to Bokhari, the brand Porsche categorises itself to be a performance and lifestyle car manufacturer instead of luxury ones.

“We don’t consider ourselves to be luxury car manufacturers. Porsche is a way of approaching life from a point of excellence. Around luxury car manufacturers like Bentley and Rolls Royce and perhaps Mercedes also, our niche and classification is in the performance luxury segment. And globally, Porsche is a brand for entrepreneurs. It is about a mindset demanding and expecting more from life in general. So, it is about achieving personal expectations. More simply it’s a reward that a successful person gives himself,” Bokhari told Profit.

He elaborated that Porsche does not present itself in a flashy manner like some of its competitors, or perceived competitors, in the industry present themselves from a sports car point of view.

“We are a sports car manufacturer. Porsche only makes sports cars, whichever category of the vehicle they

AUTOMOBILES

“PORSCHE IS ONLY PRODUCED IN GERMANY. UNLIKE OTHER VEHICLE MANUFACTURERS WHO PRODUCE SOME VEHICLES IN GERMANY, PORSCHE CONTINUES TO TAKE PRIDE IN THE FACT THAT THEY ARE ENTIRELY GERMAN. GERMAN MANUFACTURED STANDARDS SIGNIFY A CERTAIN LEVEL OF QUALITY AND PRECISION AND EVEN IF SOMEONE ORDERS A PORSCHE IN AMERICA, IT WILL BE PRODUCED IN GERMANY.” Abuzar Bokhari, CEO Porsche Pakistan may be. Any type of vehicle can be a sports car and Porsche has proven that through excellence in engineering that a two-door coupé, which is perceived to be a sports car, is not the only way a sports car can exist. That is the niche Porsche operates in. It is for those who want an excellent life.”

The Pakistani market

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ar production in Pakistan has been lackluster because the auto industry in the country is heavily import-oriented. An effort was made to reform the policy defining the automobile industry under the Nawaz Administration and an Auto Development Policy (ADP) was formulated for the period 2016-2021 to lower the entry threshold for new investment, create enabling tariff for the development of automotive sector and rationalise automobile import policy.

Despite the new policy, however, the imports of cars and minivans in

2017 surged to 65,723 units, against just 38,676 units a year ago – an increase of almost 70%. The total number of cars produced in Pakistan were 186,936 units during fiscal year 2017, while it was 217,774 units of cars produced in fiscal 2018.

Bokhari lamented that Porsche belongs to a segment of the Pakistani market heavily limited by very unfavorable import duty structures, which is why they import less. “It is extremely unfair. The current duty structure as we speak stands close to about 340% accumulated. In layman’s terms, if a person buys a car in this segment – which besides Porsche includes Mercedes, BMW and Audi – the price of the car is only a quarter of the value that the customer pays. Three-fourth of the amount actually goes to government’s kitty in form of duties and taxes,” he said, with frustration visible on his face.

On the market demand for Porsche in Pakistan, Bokhari responded

that there is a fairly healthy demand of customers that they hope to sell to.

“Porsche is very similarly priced to a market equivalent which is for instance a Toyota Land Cruiser. We sell a lot less than the Land Cruiser because of the perception in the market space that we are a country with poor infrastructure.

However, I think that Pakistan has a reasonably good road infrastructure now.

The fuel infrastructure is however very poor in Pakistan.”

But the new policy has placed incentives on starting production in Pakistan that the first-time manufacturers can take advantage of under the head of Greenfield investment. After all, Porsche imports only a small number of vehicles to Pakistan, which they were unwilling to disclose.

To this, Bokhari responded, “Porsche is only produced in Germany. Unlike other vehicle manufacturers who produce some vehicles in Germany, Porsche continues to take pride in the fact that they are entirely German. German manufactured standards signify a certain level of quality and precision and even if someone orders a Porsche in America, it will be produced in Germany. Porsche is in fact the only German manufacturer that manufactures only in Germany.” Elaborating more, he said that Mercedes, Audi and BMW – which are also German auto brands – produce the majority of their vehicles outside Germany.

‘Import policy being abused with impunity’

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ccording to Bokhari, all European car manufacturers were facing another impediment which was thrashing the market for

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European cars: the abuse of car import policy. Under the current practice, vehicles to Pakistan can be imported by expatriates or under the gift scheme.

The practice, Bokhari explained, is that importers buy the documents from the Pakistani expatriates in exchange of a sum, allowing the importers to import vehicles under the expatriate’s name.

“It is all based on fraud to begin with.”

Bokhari lamented that Land Cruiser continues to sell a lot more than Porsche because almost all of the Land Cruisers sold in the market are being given a very unfair advantage. “Not just the Land Cruiser, all imported cars from Japan, in clear violation of international law, are being given a country of origin advantage which allows them to enjoy a fixed duty regime and depreciation advantage. The loss to the national exchequer as part of this duty advantage is to the tune in excess of $1 billion annually. So, the government of Pakistan is losing $1 billion in revenue in the form of fixed duty, new and old classification, and depreciation advantages given to Japanese-origin used cars. These cars are being imported under the complete abuse of the baggage scheme.”

The ‘used car’ paradox

T

hen there is the used car paradox. Bokhari explained that a 200-km driven car is recognised as a used car by customs authorities and is imported under this category, qualifying it for a 20pc advantage in the customs duty. That same car, however, is sold as new in the Pakistani market after being imported. “So, a Land Cruiser being imported like this is being sold at a good Rs10 million less.

That Rs10 million was supposed to go into govt’s kitty, which the importer pockets and the customer pays. The

consumer will obviously buy a car that is available at Rs10 million less than a European car.”

The practice is so rampant that Toyota motor company sold less ‘new’ Land Cruisers than Porsche sold Cayenne in Pakistan, he claimed.

“All the European automobile manufacturer are at a disadvantage as they import vehicles legally and remit money through banking channels and pay taxes on the car that is imported. For the aforementioned used cars imported to Pakistan, there is not even a paper trail. The original price of these cars is transferred through Hundi and Hawala. When that imported car comes here, its duty is paid through a benami transaction because the expatriate under whose name the car is imported is no longer there after he sells his papers. That car then becomes a benami

PORSCHE PRESENCE IN PAKISTAN WAS PROVISIONALLY LAUNCHED IN 2006 AND THEN FORMALLY LAUNCHED IN 2008. SINCE THEN, IT HAS BEEN IN SUCCESSFUL OPERATION AND HAS GROWN SIGNIFICANTLY. BOKHARI CREDITED THE MUSHARRAF ADMINISTRATION FOR ITS ‘VERY SMART’ POLICIES TO ALLOW THEM TO RAISE A BRAND LIKE PORSCHE IN PAKISTAN AND MAKE IT SUCCESSFUL AND COMMERCIALLY VIABLE

asset which is then used for trading in the black market.”

A 2015 study published by Pakistan Institute of Trade and Development had revealed that the import policy of used cars, and the policy’s comparison with regional countries revealed that in Pakistan, this policy, which is meant for expatriates only, is being grossly misused, and corroborating with Bokhari’s narrative of the policy. The study had highlighted that Pakistan has weak system to ensure that policy of transfer of residence and gift and baggage schemes are not misused.

Moreover, it stated that the business of used cars is completely undocumented in Pakistan and hence there is no income tax collected on sale of used vehicles. The 10 big bulk importers of used vehicles in Pakistan hold public auctions where used car dealers and individual buyers purchase these cars against payments through cash or grey bank accounts. Assuming average sales value of Rs1.5 million per unit and import of 36,000 vehicles per year, the undocumented trade of used cars amounts to creation of a black economy in the country worth a staggering Rs54 billion per annum.

Suneel Sarfaraz Munj, the co-founder and chairman of PakWheels, the country’s leading car-buying web portal, however, disagreed, stating that a particular brand of

AUTOMOBILES

“THE GOVERNMENT SHOULD ALLOW IMPORTING CARS TO EVERYBODY. IT IS NOT ALLOWED TO ORDINARY CITIZENS. THAT IS WRONG. IT SHOULD BE ALLOWED TO EVERYBODY. CURRENTLY IT IS ALLOWED TO EXPATS ONLY OR UNDER GIFT SCHEME. AND THEY HAVE BEEN ALLOWED TO SELL THAT RIGHT TO SOMEONE ELSE TO IMPORT UNDER THEIR NAME. NOW YOU CANNOT DEPRIVE THEM OF THIS RIGHT OF SELLING” Suneel Sarfaraz Munj, Co-founder and Chairman of PakWheels automobile cannot be singled out for taking advantage of the used car import policy. The policy is the same across the board for all those who want to import. He was of the view that new car policy cannot be compared with the old car policy for any automobile manufacturer. “You can compare a new Land Cruiser with a new Porsche, not a new Porsche with a used Land Cruiser because policies for new and used vehicles are different.”

He, however, agreed that a customer will prefer a used car with a lowprice tag against a new one at a high price. “So yes, the customer will buy a slightly used Land Cruiser at a competitive price against a brand-new Porsche with a high price tag. “But then there are other costs affiliated with the import of used cars. The customer will have no dealership support and also no warranty.”

There is simply no silver bullet.

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Munj opined that the government should allow importing cars to everybody. It is not allowed to ordinary citizens. That is wrong, according to Munj. It should be allowed to everybody. “Currently it is allowed to expats only or under gift scheme. And they have been allowed to sell that right to someone else to import under their name. Now you cannot deprive them of this right of selling.”

Profit also inquired about Porsche’s plans ahead to expand in Pakistan, outside of their dealership in Lahore. Bokhari held that contingent upon government’s auto policy, which he believes is currently meant to sustain the local industry. He was of the opinion that Pakistan’s current auto policy is extremely outdated, as he made a zesty appeal to the government to completely revisit the policy because it is completely missing the future direction that the world and

transport is going towards globally.

On the allegations that Porsche dumps its older models in Pakistan which could not be sold in Europe, Bokhari said, “There is absolutely no truth in it. It is far from truth. It is not even possible because we are specialty manufacturers. We are not mass manufacturers. It’s an individualised car that is pre-ordered and the delivery time depends on the specification of the car and the global demand.”

But Porsche did experience mild hiccups in deliveries, which Bokhari blamed on new State Bank regulations for payments that caused cash-flow issues. “Under new rules, if we had to import a car worth $100, we had to deposit $100 cash into the bank to open the LC. So the money associated with the business was now parked with the banks in cash. That caused cashflow issues, leading to some delays in deliveries.” n

AUTOMOBILES

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How the conglomerate will deploy this capital over the next few years will define its future for the next generation – and possibly that of Pakistan

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By Farooq Tirmizi

t was a back-to-back series of announcements that shocked Corporate Pakistan: Engro Corporation, one of the largest private sector conglomerates in Pakistan, announced in March 2016 that would be selling a majority stake in its most promising subsidiary, Engro Foods. It followed that shocker with another one three months later in June 2016: that it would also be selling a significant proportion of its holding in its oldest, and still core, business line, Engro Fertilizers.

CAPITAL ALLOCATION

All told, the company made Rs54.7 billion in capital gains from these two strategic transactions that year.

It was at that point that the speculation game was on. What would Engro do with that pile of money? Combined with other, smaller transactions, the total amount of cash on Engro’s balance sheet hit Rs60 billion, an astronomical sum by Pakistani standards. Clearly, the company was gearing up for a major strategic shift in direction and was expected to announce a series of other transactions that would soon signal where it was heading?

Two and a half years later, and long after the transactions have closed, the nation’s corporate sector – and capital markets – are still waiting to understand what Engro will do next.

So what happened? Why did Engro sell those shares in the first place?

And why has it still not redeployed that capital into other ventures? What is it waiting for?

And, perhaps most importantly, what exactly does it plan to do with that pile of cash? To understand the answers to these questions, it helps to first understand what Engro will not be doing with the money.

The strategic re-alignment

B

y 2016, when Engro made those decisions, the board had been mulling the direction of the company for several years. In truth, it was an inflection point in the company’s history that had already seen two significant phases in the post1991 management buyout era.

“THE DECISIONS WE MAKE NOW WILL IMPACT THE DIRECTION OF THE COMPANY FOR THE NEXT 25 TO 30 YEARS. WE WANT TO BE VERY DELIBERATE ABOUT WHERE WE DEPLOY THAT CAPITAL SO THAT IT CAN HAVE THE MAXIMUM IMPACT” Samad Dawood, Director, Engro Corporation The first phase of expansion was what company director Samad Dawood calls the diversification phase. It lasted from approximately 1997 through 2012, when the company slowly expanded into areas outside of its historical core operations of fertilizer manufacturing and into petrochemicals, commodities trading, power generation, and food production.

The second phase can only be described as a deep foray into energy.

While Engro had been engaged in the power generation business since 2005, the company did not begin its significant commitment to energy until 2014, when it was finally able to begin work on a coal mining and power generation project in Thar. It then diversified its

Engro Corporation headquarters at the Harbour Front Building in Karachi

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commitment within the energy sector by commissioning Pakistan’s first liquefied natural gas (LNG) import terminal.

It was at that point that conversations in Pakistan’s capital markets – and even within the company itself – began to focus on just how much Engro would invest in the energy sector. So when the announcements came about the divestiture of its stakes in Engro Foods and Engro Fertilizers, the logical next question was: is Engro now just an energy company?

The initial conversations around that time very much seemed to indicate yes. Indeed, in interviews with Profit in December 2016, the company’s chairman and largest shareholder, Hussain Dawood, stated outright that Engro’s motivation behind selling those stakes was to raise the equity they would need in order to expand their investments in the energy sector.

“The reason for the Engro Fertilizers transaction had little to do with a desire to exit the business or to scale down exposure to it and more to do with the positive desire to raise cash to expand both Engro and Dawood Hercules’ presence in the power generation sector,” Hussain Dawood had told Profit at the time.

Samad Dawood, his son and also a board member, was even more bullish at the time. “We are long on the Pakistan energy market. Our group took over a controlling stake in Hubco [the Hub Power Company] back in 2012.

We brought in new management, a new board, invested into the plant to

improve its performance while simultaneously entering into some strategic partnerships with the Chinese, Engro and GE. As a result of these efforts not only the operational metrics went up but the market also appreciated the work we did. And since our acquisition we have been able to create 45% annualised shareholder return over the last four years.”

Over the course of 2017, however, the company’s management started having doubts about the energy strategy, though this was not immediately obvious to outsiders, since Engro kept financing its share of the commitment to developing a coal mine and coalfired power plants in Thar.

But if you were paying attention to the balance sheet, and noticing the subtle shifts in the CEO and chairman’s letters to the shareholders each quarter, you could tell that something had moved.

The consumer-focused strategy

S

ince its founding in 1965, Engro has been an industrial, business-to-business commercial enterprise. Its first foray into the consumer-facing business was with Engro Foods in 2006, and while that investment was ultimately highly profitable, it was nonetheless an anomaly relative to the rest of Engro’s businesses, nearly all of which were either industrial, or serving business clients, not retail consumers.

While the core driving force of economic growth in most countries is ultimately consumer spending, Engro has never historically been in any of the layers of business closest to the consumer’s wallet. However, in 2017, the company made a decision to start heading a little closer to direct consumer spending.

The first public hints of the new strategy came in August 2017, when a Malaysian company – edotco Group – announced that it would be buying out 13,000 cellular telecommunications towers from Jazz, Pakistan’s largest mobile telecommunications operator, and that it would be forming a joint venture with Dawood Hercules Corporation in order to do so.

Strictly speaking, the Dawood Hercules Corporation, while the single largest shareholder of Engro Corporation, is an independent company with

“LET’S BUILD OUR OWN NAPHTHA CRACKER AS PAKISTAN NEEDS IT” Imran Anwar, CEO, Engro Polymer & Chemicals its own management and a board that has overlapping, but not completely the same, board memberships. But because Hussain Dawood is the chairman of both companies, and because he controls a lot more of DH Corporation than Engro, it is sometimes seen as a precursor to what the market can expect to see in Engro.

For instance, Dawood Hercules bought a share in the Hub Power Company in 2012 before the major push into the energy business by Engro.

And Dawood Hercules sold its fertilizer business two years before Engro sold a significant stake in its fertilizer manufacturing subsidiary.

So the edotco transaction could be seen as an early indication of a shift in priority: stay focused on a business-to-business enterprise, but move just a little closer to consumer spending. While the transaction was ultimately unsuccessful (it was denied regulatory clearance), it was a clear signal of intent.

Since then, rumours have been swirling throughout corporate Pakistan about what Engro might buy next. Just about anything that is up for sale, or even considering going up for sale, is being pitched, or is being rumoured to have been pitched, to Engro. Pakistan is not a rich country, so when a publicly listed company has Rs60 billion idling on its balance sheet, word gets around fast, and the opportunists line up very quickly at the door.

What’s causing the delay?

T

wo years is a long time in the corporate world. And in a country like Pakistan, where macroeconomic indicators can shift rapidly, it is a very long time. Since the Engro Foods transaction was announced, for instance, the Pakistani rupee has depreciated by 33.2%. Besides the expected impact that depreciation will have on inflation, that also means that any equipment that needed to import-

ed from abroad, or any foreign shareholder who needs to be paid to buy a company, now has a cost basis that is more than 33% higher than it was two years ago.

The delay, in other words, has serious consequences. And it is starting to get the critics to question the judgment of the company’s management and its board of directors.

“It is not that hard to deploy Rs60 billion in capital in Pakistan. The Dawoods make it difficult because they are being too careful and conservative [with their investment strategy],” said one finance professional who is familiar with the deliberations at Engro, and chose to remain anonymous because they were not authorized to speak to the press on the matter.

For their part, the Engro board – and the Dawood family in particular – are aware of the criticisms and are not bothered by them.

“The decisions we make now will impact the direction of the company for the next 25 to 30 years. We want to be very deliberate about where we deploy that capital so that it can have the maximum impact,” said Samad Dawood, in an interview with Profit.

In other words, what’s a few months of deliberation when you’re setting the direction of one of the most important companies in the Pakistani economy for an entire generation?

And it is not as though the company has been sitting idly by, watching opportunity pass it by. Both the management and the board of directors are actively evaluating several options, in several key sectors.

So where will they take this storied Pakistani company? Based on information gleaned from the company’s own public statements, as well as sources who are familiar with the company’s

CAPITAL ALLOCATION

deliberations, we have gleaned a picture of what some of the top contenders for Engro’s capital might be.

Petrochemicals: expanding into complex processes

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he one near-certainty about where Engro will be deploying some of its capital is in the petrochemical sector, where the company’s subsidiary – Engro Polymer and Chemicals – has publicly stated its interest in setting up a petrochemical cracking facility in Pakistan.

At a symposium held in Islamabad on October 24, 2017, Engro Polymer CEO Imran Anwar said: “Let’s build our own naphtha cracker as Pakistan needs it.” And in its investor presentation for the third quarter of 2018, Engro Corporation identified ethylene crackers as an opportunity for investment.

The company has clearly decided that cracking – an industrial process that involves breaking down larger, more complex hydrocarbon molecules into smaller, more useful hydrocarbons – is something it would like to invest in. It appears to simply be deciding on which type of cracking would be most feasible for the Pakistani economy.

Once it makes that decision, it can be expected that a significant portion of the company’s capital will be deployed in Engro Polymer’s expansion into a new line of business.

It is somewhat understandable as to why Engro is probably closest to making a decision on this petrochemical business. It is close to the company’s roots, involves a large capital outlay that few other players in the country can match in terms of both capital and technical expertise, and has an industrial client base that Engro is quite comfortable selling to and already has established relationships with.

Logistics: infrastructure for the supply chain

O

ne business area that Engro has been interested in since at least 2011 has been logistics. Pakistan has atrociously bad supply chains, in large part because both the physical and commercial infrastructure required for efficient supply chains simply does not exist in the country.

(Physical infrastructure refers to roads,

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King’s College London Hospital at Dubai railways, and air transportation facilities. Commercial infrastructure refers to large scale companies dedicated to providing the ability to move and store goods.)

Engro has been studying this area for a long time, and the board is convinced that logistics as a sector of the Pakistani economy is worth investing in. The discussion within the company, however, centers around which vehicle would be best suited to capture significant economic value from improving the currently atrocious inefficiency of Pakistan’s logistical infrastructure.

On that front, the company faces essentially two paths: it can seek to build something from scratch, or it can buy out an existing company and then invest in expanding it to scale. In his conversation with Profit, Samad Dawood confirmed that the company is evaluating both options, but implied that a decision has not yet been reached on the matter.

Sources familiar with the company’s thinking say that any organic foray into the logistics space would involve the company investing in creating a subsidiary that would first handle Engro’s own internal logistics need as its business core, following which it would seek to expand into serving other businesses as well. Given the fact that Engro has thousands of distributors selling to over 11 million farmers in the country, it certainly has a large enough internal need to form the basis of a significant logistics company in its own

right.

Healthcare: hospitals for the middle class

I

n statements to the press as well as investors, Engro Corporation has confirmed an interest in the healthcare sector in Pakistan, though the precise form of what that investment will look like has not yet been stated publicly by the company.

However, sources familiar with the company’s deliberations on the matter say that Engro is considering a partnership with Ashmore, the London-based emerging-markets-focused investment management firm, and King’s College London Hospital to set up a chain of hospitals throughout Pakistan. The hospitals would seek to cater to middle and upper-middle class consumers who want access to quality healthcare and are willing to pay a brand premium for a European hospital company’s facilities within the country.

It is unclear how far the discussions have progressed with respect to this proposal, nor is it clear what is sticking point between the three parties with respect to pulling the trigger on proceeding with the project.

When asked by Profit to comment on the matter, Samad Dawood neither confirmed nor denied that Engro was engaged in such a discussion, but simply stated that the company is indeed evaluating opportunities in healthcare.

Should Engro succeed in bring-

ing King’s College London Hospital to Pakistan, it would not be the first foray into the region for the famed London institution. King’s College Hospital UAE currently operates two medical centers in Dubai, one surgical and medical center in Abu Dhabi, and is in the process of constructing a 100-bed hospital in Dubai. Nonetheless, it would be the very first foreign healthcare brand to enter the Pakistani market, outside of the pharmaceutical sector.

Real estate: the ‘safe’ bet

I

n September 2018, Reuters published an interview with Engro CEO Ghias Khan that suggested the company might be interested in investing in real estate, or at least was considering opportunities in the space.

“Undeterred by Chinese investment jitters and the recently wobbly economy, Khan said Engro was weighing acquisitions and starting new businesses in agriculture, healthcare, real estate, communications and other consumer-linked sectors to profit from rising incomes in the Muslim majority country of 208 million people, 60 percent of whom are aged under 30,” the Reuters story stated.

It quoted Khan as saying: “If you look at sectors that did well when they were where Pakistan is today ... like real estate, automobiles, healthcare, logistics – everything is somehow related or linked to population growth or the middle class.”

And there were indeed some rumours earlier this year about Engro possibly considering an acquisition of Emaar’s assets in Karachi’s Defence House Authority neighbourhood, specifically the Crescent Bay project.

However, while real estate is certainly a consumer-facing area of investment, it is one that is likely one of the least attractive from an institutional investor’s perspective, not least because of

Crescent Bay Karachi construction site the extreme distortions in land prices in Pakistan that result in monthly mortgage payments frequently being twice as high as monthly rents for the same property.

It is unclear what Engro would even do with real estate. Everything the company’s management and board of directors have stated suggests that they are looking for long-term investments in building out essential services for Pakistan. But once a real estate project is done and sold, that is it as far as the developer is concerned. They move on and build something else in a different location. Even if Engro were to consider what would at this point effectively be a bailout of Emaar in Pakistan, what would they do even if they managed to finish building the Crescent Bay project and sell all of the apartments (a big if, one might add)?

Engro is unlikely to see itself as a real estate development company.

So why bother investing in a massive, capital-intensive asset that does not have the potential to be a long-term investment?

IF THERE IS ONE PHRASE THAT WOULD DESCRIBE ENGRO’S APPROACH TO HOW IT IS THINKING ABOUT ITS INVESTMENT STRATEGY, IT IS “PURPOSE-DRIVEN CAPITALISM”, AN ALMOST IDEALISTIC VISION OF THE ABILITY OF CAPITAL – AND THOSE WHO WIELD IT – TO CHANGE THE WORLD THEY INHABIT FOR THE BETTER BY INVESTING IN THINGS THAT PEOPLE NEED, AND MAKING MONEY ALONG THE WAY

A broader vision

I

f there is one phrase that would describe Engro’s approach to how it is thinking about its investment strategy, it is “purpose-driven capitalism”, an almost idealistic vision of the ability of capital – and those who wield it – to change the world they inhabit for the better by investing in things that people need, and making money along the way.

“Purpose” is a word Samad Dawood used repeatedly in his interview with Profit, suggesting that it is a concept that is top of mind for the board, and likely a key deciding factor in how the company will make its decision.

As chairman of the board’s investment committee, Samad is likely to have considerable influence on the ultimate outcome of those deliberations.

The investments that Engro is considering do not have a unifying commercial theme, other than the fact that they each address a critical piece of the infrastructure that Pakistan needs for its economic development and currently does not have. In that respect, the old spirit of Engro – imbued into the company’s soul by its first post-1991 CEO Shaukat Raza Mirza – appears to be alive and well: the notion that the company should be the vehicle where the best of Pakistani corporate talent meets a large pool of capital and seeks to solve some of the country’s biggest and most complex challenges.

Regardless of what direction they take next, regardless of what project they choose, if Engro can keep that spirit alive within its workforce, it will likely find itself succeeding financially. n

CAPITAL ALLOCATION

OPINION

Fahd Ali Sheikh

turistic billionaires. Examples of the US’s next-generation billionaires: Mark Zuckerberg (Facebook), Larry Page and Sergey Brin (Google), Jeff Bezos (Amazon), Steve Jobs (Apple), Brian Chesky (Airbnb), Elon Musk (Tesla / Space-X / Paypal), and Travis Kalanick (Uber) along with dozens of other such billionaires.

These entrepreneurs are at the forefront of enabling America’s quantum leap into the intensely technological How the wealthy elite in Pakistan remains and exponentially sophisticated next 100 years. Their high unimaginative with their use of capital, intellect-based, innovation-driven, futuristic, tech-savvy, and and why that is holding the nation back risk-taking approach is not propelled by their government.

The United States government is there only to create an enabling environment, in order for these amazing individuals’ he Islamic Republic of Pakistan’s billionaires are basic billionentrepreneurship and ideas to flourish. aires. They are sugar and edible oil, fertilizer and packaging, Their qualities are driven by a deep desire to see their cement and steel billionaires. They are private education and country remain a global leader for the next 100 years and housing real estate billionaires. They are old-school banking for their countrymen and people around the world alike to and ambient logistics billionaires. They are mid-20th cenbenefit from their forward-thinking and innovativeness. tury-technology automobile manufacturing billionaires.

Due to this unending quest for greatness and discovMost started off as and still are textile and leather goods billionaires. ery, they continuously reinvest and start-up new businesses.

None of them is a social media or telecommunications billionaire.

They persistently search for the next frontier and new opNone of them is an aircraft manufacturing, advanced defenseportunities within and outside their existing businesses. tech, precision engineering, or aviation billionaire. None of them is a They keep thinking, taking risks, investing, making mistakes, biotechnology or research-and-development-based pharmaceuticals learning, and reinvesting again until they get things right. billionaire. None of them is a renewable energy or electric car-manuIn this beautiful entrepreneurial process, major refacturing billionaire. None of them is an artificial intelligence, robotics, search and development takes place, groundbreaking new fintech, or e-commerce billionaire. None of them is even an IT services technologies are invented, and patents registered. Innovaor BPO billionaire. tion thrives, and America remains the world’s leading naAll of Pakistan’s billionaires are therefore basic billionaires. tion-state. Pakistan’s billionaires, on the other hand, are The United States of America also used to have basic billionaires, hoarding hundreds of billions of rupees in cash at the molike the Rockefellers, the Carnegies, and the JP Morgan family. Howment. They are all real estate billionaires as well, despite the ever, these billionaires thrived back in the late 18th and early-to-mid majority of them having nothing to do with the business of 19th centuries. It has been more than a hundred years since then. real estate development. They owe this cash and property The billionaires of America today are highly sophisticated and futo their country and its people. After all, the country allowed them to practice their trade freely and expand their businesses, in most cases in a highly protected and cartel-based environment, and the people of Pakistan bought their goods and gave them new business year-on-year over the past 70 years.

Fahd Ali Sheikh However, they continue to stash billions of dollars overseas, along with parking hundreds of billions The writer is a former of rupees in the banks of Pakistan, which are also mostly owned by these same basic billionaires. Their investment banker at cash holdings and properties are essentially dead assets, as such kind of assets are of no use to the counStandard Chartered try’s economy and future until they are actually put into proper economic use. America’s billionaires, on Bank and currently the other hand, are the real reason behind their country being able to establish itself as the world’s most heads the New Opportupowerful military and economic power ever. How have they achieved this feat? By being forward-thinking nities Group at TCS and constantly innovative, by taking risks and betting their money on futuristic technologies, by believing Holdings. He holds an in continuous improvement processes as the core of their businesses’ ethos, and by recognizing the value MSc in Finance from of talent, hiring the best brains from around the world, and compensating them accordingly.

London Business School.

When will Pakistan’s basic billionaires rise to the occasion? n

Pakistan’s Basic Billionaires

T

CAPITAL ALLOCATION

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Careem may have opened up earning opportunities for many, but for others, it has left financial devastation in its wake

“I

By Shehzil Zahid

’ve been out here all morning. Do you know how much I’ve earned so far? One hundred rupees.”

These are the words of a grizzled 50-year-old man, gruffly spoken through a mouth of missing teeth. His beard is white, his face is sunburnt and wrinkled, and his name is Sikander. Sikander will work up to twelve hours a day – his route will take him through sectors F and G in Islamabad. He will come home with a daily wage that barely sustains his nine children. His mother has died and his ageing father depends on him just as much as the children, none of whom are in school.

“School? Ha! I barely earn enough to feed them. Do you think I can send them to school?” says Sikander, with a wry chuckle.

“There is no place in Pakistan for the poor.”

Men like Sikander have been driving taxis for much of their adult life and know no other work. Some live in small servant quarters with their wives, who work in the houses. Others live in the city, away from their families, and visit them back home when their earning allows. Others still are scattered across the city, sleeping wherever they find space, whether that be in their cars, or the open air.

“I’ve been driving a taxi for twenty years,” says Naseer Ahmed, a cabby in G-9. “I was earning roughly Rs40,000 a month. Now I’m lucky if I make half of that.”

Everywhere, the complaint is the same. The same conversation takes place over and over across the city, in dhabbas, at

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addas, and at shopping hubs like Centaurus Mall, where taxi drivers collate, hoping to catch the odd passenger who is not a Careem or Uber user.

“It’s made things harder,” says Arshad Shah, a taxi driver who has been at it for fifteen years now.

“The Careem people have a lot of advantage that we don’t. They can drive into the Red Zone, and we can’t.

They don’t pay motor vehicle taxes either.”

Though it may sound simple, the taxi drivers’ conflict with Careem is complex. Increasingly over the past several months, a cloud of anger and resentment has seeped into the taxi driver’s psyche. If the loss of livelihood was not enough to compel them to act, Careem’s consequence-free operations were.

The taxi drivers allege that Careem is a taxi service provider and should be liable to the same laws and taxes that motor cabs and other public service vehicles incur. They argue the authorities do not compel Careem to abide by the law like it compels taxi drivers.

However, Junaid Iqbal, Managing Director of Careem Pakistan, defines Careem as a technology company that connects buyers and sellers. He outlines Careem’s first endeavor as connecting ride seekers to ride providers. In other words, Careem is simply a platform, and anyone is free to use it to get a passenger or a ride.

In August 2017, Malik Aftab, President of the Taxi Drivers Welfare Association (TDWA), filed a case against Careem and Uber in the Islamabad High Court (IHC), in violation of Section 34 of the Provincial Motor Vehicle Ordinance, 1965, which penalizes public service vehicles that fail to comply with motor vehicular law in reference to motor cabs i.e. cars for hire. While the hearing has concluded, Careem has obtained a stay order in reference to this case, and the final verdict has been delayed until further notice.

“The struggle of the taxi walas is the struggle of the working class,” says

Malik Aftab (left), President of the Taxi Drivers Welfare Association (TDWA) Umar Gillani, who represents TDWA in court, “and it has to continue, with a small chance or none.”

According to the Provincial Motor Vehicle Ordinance, 1965, all public service vehicles engaged in the carriage of passengers for hire or reward are compelled to obtain a permit from the Provincial or Regional Transport Authority (RTA), have a valid certificate of fitness, and pay the appropriate taxes levied under the Provincial Motor Vehicles Taxation Act, 1958.

According to the Excise, Taxation & Narcotics Control Department, Punjab and Excise & Taxation Department Islamabad Capital Territory, someone looking to drive a car for hire must pay the appropriate fee to first convert their private car into a commercial one. Applicants are compelled to pay a certain amount of money for the completion of this process, and that amount can be calculated on each department’s website.

Typically, this amounts to Rs8,000–9,500 for individual taxi drivers in Punjab and Islamabad. In addition to these initial taxes, drivers are also compelled to pay the token tax annually and pass the vehicle fitness test

ON APRIL 23, 2018, CAREEM ANNOUNCED THAT IT HAD FACED A MASSIVE DATA BREACH THAT SAW THE INFORMATION OF 14 MILLION PASSENGERS AND 558,800 CAPTAINS COMPROMISED. THE COMPANY HAD KNOWN ABOUT THE BREACH AS FAR BACK AS JANUARY 14, 2018

biannually. This can amount to Rs2,000 a year. Furthermore, drivers must apply for a route permit every three years.

A route permit for Islamabad is not possible without obtaining a route permit for Punjab, and that can cost taxi drivers in Islamabad up to Rs1,200 every three years.

Under Section 34 of the Provisional Motor Vehicle Ordinance, 1965, any public service vehicle that fails to comply with the regulations outlined shall have its registration certificate suspended. Under Section 106, individuals who drive a motor vehicle or allows a motor vehicle to be used without the appropriate permit will be punished with imprisonment for a period of six months or with a fine that extends to Rs500.

The Ordinance has defined the term “public service vehicles” as “any motor vehicles used or adapted, to be used for the carriage of passengers for hire or reward, and includes a motor cab, contract carriage, and stage carriage”. “Motor cab” refer to any motor vehicle used to carry not more than ten passengers, for hire or reward.

The definition “motor vehicle for hire” is loose enough to include Uber drivers and Careem Captains, if not the companies themselves. Careem already separates its work from that of Captains, by identifying itself as a technology company. Regardless, the work of Captains remains the same. They drive for hire.

Junaid Iqbal, however, insists that Careem Captains fall outside of this definition. He believes Captains engage

TRANSPORTATION

“CAREEM SHOULD NOT BE REGULATED RIGHT NOW. EUROPEAN COUNTRIES HAVE POURED SIGNIFICANT INVESTMENTS INTO PUBLIC TRANSPORT. REGULATIONS AGAINST COMPANIES LIKE UBER AND CAREEM PROTECT THEIR INVESTMENTS. COUNTRIES LIKE PAKISTAN, HOWEVER, WHERE PUBLIC TRANSPORT INVESTMENTS WERE NEAR TO NON-EXISTENT UNTIL RECENTLY, STAND TO BENEFIT FROM PRIVATE SECTOR INVESTMENTS Junaid Iqbal, Managing Director of Careem Pakistan in ride-hailing, which refers to booking a car using an online platform. He argues that ride-hailing is a new phenomenon, introduced seven years ago by Uber, and commercialized by Careem in Pakistan.

“There’s no paperwork for ride-hailing,” insists the Careem supremo.

The distinction between ride-hailing and taxi driving seems to be that ride-hailing uses an online platform to book a car for hire, while taxi driving does not. Is that a good enough reason for the government to exempt Careem Captains from paying motor cab taxes?

Or for Careem to resist classification because the legal definition is not precise enough? Or does it warrant new legislation altogether?

Even if Careem self-identifies as a technology company, Careem knowledgably and routinely signs Captains who do not comply with motor vehicle legislation with respect to motor cabs. Careem maintains Captains are self-employed and merely use the

platform to find passengers, but Careem regulates Captains signed onto its platform. Captains are prohibited from smoking in the car, driving above 40 km/h, and can seat no more than 4 passengers at a time. Captains who face complaints or consistently poor ratings are penalized and retrained to adhere to Careem standards.

“Khaadi has to abide by the rules of Dolmen Mall,” says Iqbal, “Similarly, Careem is a virtual market place and we have to manage it.”

If Careem is indeed the Dolmen Mall to these drivers’ Khaadi, the question becomes – why won’t Careem take its regulations a step further and compel its drivers to abide by the existing laws and taxes that concern motor cabs?

“Regulation affects supply,” says a Careem employee, who has asked to remain anonymous. He believes that compelling Careem to abide by legislation that pertains to motor cabs will affect the number of people signing on to Careem’s platform as ride providers.

MEN LIKE SIKANDER HAVE BEEN DRIVING TAXIS FOR MUCH OF THEIR ADULT LIFE AND KNOW NO OTHER WORK. SOME LIVE IN SMALL SERVANT QUARTERS WITH THEIR WIVES, WHO WORK IN THE HOUSES. OTHERS LIVE IN THE CITY, AWAY FROM THEIR FAMILIES, AND VISIT THEM BACK HOME WHEN THEIR EARNING ALLOWS. OTHERS STILL ARE SCATTERED ACROSS THE CITY, SLEEPING WHEREVER THEY FIND SPACE, WHETHER THAT BE IN THEIR CARS, OR THE OPEN AIR

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Ultimately, he says, that will impact Careem’s growth, a company he argues, that is still in its nascent stages and has just broken even.

The employee believes that unregulated, Careem is doing more good than harm. He argues that Careem has ambitions that would continue to see the country benefit from its operations.

Over the last two years, Careem has worked with The Citizens Foundation (TCF) to generate donations to build schools. Most recently, Careem announced its partnership with Edhi Foundation to provide ambulance services in the country. Karachi customers of the ride-hailing app can now make a ‘later’ booking for the service by clicking on the ambulance category.

“Careem should not be regulated right now,” he asserts.

Following the formal question of its legality in January of last year, Careem has been hinting at working with provincial governments to develop new legislation that would incorporate e-commerce companies like Careem into the tax bracket. Iqbal says that so far, there has been an agreement on the broad principles on which legislation is to be based. He also claims that Careem is on the verge of signing a Memorandum of Understanding (MoU) with at least two provinces, but that does not mean an agreement has been reached with RTAs. Careem’s previous MoU had been signed with Punjab Information Technology Board (PITB), not the PTA. Iqbal reasons that European countries have poured significant investments into public transport. Regulations against companies like Uber

and Careem protect their investments.

Countries like Pakistan, however, where public transport investments were near to non-existent until recently, stand to benefit from private sector investments.

“That makes regulation more unfavourable,” says Iqbal.

Careem’s tax status, separate from those Captains, is also questionable.

The 2017 Finance Act improved on the Income Tax Ordinance of 2001, and introduced the concept of an online marketplace, which the Act further defined as “an information technology platform run by an e-commerce entity over an electronic network that acts as a facilitator in transactions that occur between a buyer and a seller”.

In Section 2, 38B, the Act compels such platforms to pay an income tax of 0.5% and sets the rate of collection of advance tax on brokerage and commission on an online marketplace at 5% for the Tax Year 2018.

Currently, Careem is registered with the FBR as a “Service Provider”, and is only liable to pay income tax, which Careem has not filed for the Tax Year 2017. While Iqbal says that Careem is in the process of being regulated, he issued the following statement in relation to further questions about taxes and regulation: “We are currently engaged with authorities at the provincial and federal level regarding how ecommerce platforms will be regulated and taxed, hence it would not be right for me to comment on specifics at the moment.

Having said that, the process is moving swiftly and we have excellent support from all quarters of the government.”

Without policy to protect them and with weak exercise of legislation compelling them, taxi drivers have made multiple attempts to pressure the relevant authorities to compel Careem to pay these taxes, but to no avail.

In December 2016, the Taxi Drivers Welfare Association (TDWA) lodged a complaint against taxi companies that were operating without permits.

Punjab government’s Taxi Scheme cabs await passengers According to a report by Dawn, the Islamabad Transport Authority (ITA) raised and sealed these taxi companies’ offices, including Careem’s.

In late January 2017, the Punjab Government’s Provincial Transport Authority (PTA) announced that ride-hailing services, Careem and Uber, were found to be in violation of motor cab legislation. They were given 15 days to register their cars with the appropriate regulatory bodies and acquire a vehicle fitness certificate. In response, Careem lobbied for legal reforms that Careem felt would incorporate the company into the tax-paying fold.

The PTA, for its turn, compiled a report with regard to Careem’s operations in the country. The report, which maintains that Careem is operating illegally, was passed on to the Punjab Chief Minister. The report claims that Careem is neither willing to pay the required taxes, nor colour nor commercialize their cars. No formal action was taken after the 15-day period, despite Careem’s non-compliance. An official at the PTA, who wished not to be named, believes that no action has been taken because of Careem’s multinational stature, and because of consumer demand.

By August, taxi drivers in Islamabad had begun to protest at Rawal

CAREEM’S TAX STATUS, SEPARATE FROM THOSE CAPTAINS, IS ALSO QUESTIONABLE. CURRENTLY, CAREEM IS REGISTERED WITH THE FBR AS A “SERVICE PROVIDER”, AND IS ONLY LIABLE TO PAY INCOME TAX, WHICH CAREEM HAS NOT FILED FOR THE TAX YEAR 2017

Dam Chowk. The primary purpose of the protest was to force action against ride-hailing apps, which were impacting their daily wages. Malik Aftab, President TDWA did not participate in the protest, given that he had already filed the writ petition against Careem and Uber in the IHC. One of the taxi drivers’ major complaints is that despite paying numerous taxes, they do not receive any benefits or social security from either Punjab Employees Social Security Institution (PESSI) or ICT Employees Social Security Institution (IESSI).

“In order to qualify for social security, units must be registered with the IESSI,” says Raheel Bashir, Assistant Director Recovery, IESSI, “Currently we have 1,110 registered units under which 36,000 secured individual workers are registered to receive social security.”

Basheer says that it is mandatory for all operating units – organizational bodies – to register. Only non-government organizations and government institutions are exempt. Units must consist of at least three workers to qualify for social security, but because the majority of taxi drivers are self-employed, they do not qualify for social security with either institute. PESSI operates in a similar way that excludes taxi drivers from benefiting from social security.

Interestingly, Careem and Uber are both registered with IESSI, which qualifies their employees for social security. Whether that qualifies Careem Captains for social security is difficult to say, considering that Careem has always maintained that Captains are independent contractors.

Careem’s service category “Ca-

TRANSPORTATION

Taxi drivers taking a break at the dhaba reem Taxi” further compounds these issues. Does Iqbal’s assertion that Careem Captains engage in ride-hailing apply to Careem’s Taxi Captains, too? If so, does that exempt Careem’s Taxi Captains from paying their taxes?

Request for answers to these questions was not granted.

Careem’s ambition may have been to address taxi driver complaints by incorporating them into Careem’s service categories. The hope was to entice taxi drivers with a consistent surplus of demand (passengers) leading to an increase in net income, in exchange for a 30-70 split on earnings.

Despite the effort, Careem’s payment structure does not appear to be lucrative for taxi drivers. A typical taxi driver will keep most of his earnings, but with Careem Taxi, he is liable to pay around 30% of his earnings to Careem.

Careem’s bonus structures do offer him some leeway, in that the split may become roughly 20% to Careem and 80% for himself. However, because he is still under obligation to pay motor vehicular taxes, and is often harassed for bhatta (illegal extortion) by rogue police officers, the average Careem Taxi

Captain is still struggling to make ends meet.

Of course, taxi drivers can privatize their commercial cars – that would seem to solve the aforementioned contradiction, but it would be foolish for Careem to compel them to. PTA and ITA still consider Careem cars illegal and because their cars are easily identifiable, taxi drivers will be held accountable before anybody else.

“I worked for Careem Taxi for a few months,” says Liaqat Hussain. He says that Careem scouts would wait at addas and stops in attempts to recruit taxi drivers. Twice, he says, they approached him, before he relented and signed up with them.

Hussain says that the only advantage a Careem Taxi Captain has is the opportunity to earn a bonus, separate from his daily wage. Careem encourages its Captains to stay online and take rides by offering bonuses. If a Captain can achieve a certain number of rides a day, he/she will receive a bonus from Careem. Hussain alleges that when he first signed up, the bonus structure was designed such that it seemed easy to achieve. Within twenty days, the struc-

IF CAREEM IS INDEED THE DOLMEN MALL TO THESE DRIVERS’ KHAADI, THE QUESTION BECOMES – WHY WON’T CAREEM TAKE ITS REGULATIONS A STEP FURTHER AND COMPEL ITS DRIVERS TO ABIDE BY THE EXISTING LAWS AND TAXES THAT CONCERN MOTOR CABS?

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ture changed. Soon after, it changed again, making the now seven-rides-aday goal challenging. Eventually, he says, in a two to three-month period that he worked as a Careem Taxi Captain, it became impossible.

“I quit soon after,” says Hussain, “It didn’t suit me.”

Hussain says the average taxi driver is lucky to get ten rides a day. By the time he quit, the daily bonus goal had become twelve rides. Working as Captain, he was earning the same amount he had been earning as an average taxi driver. Even though he was taking more rides, he was still taking home less money because of the 30-70 split with Careem. The continuous instability of the bonus structure and the pressure to stay online constantly also dissuaded him from continuing to work as a Captain.

“The Captains are not happy with the new bonus structures,” admits the anonymous Careem employee. Captains like Zeeshan Abbasi state that it is impossible to make a living as a Captain without the added advantage of a bonus. Increasingly, bonus structures have proven to be erratic and unfavourable, changing as early as seven days or as late two months, with targets that many Careem Captains feel are difficult to achieve.

In recent months, Careem Captains and Uber drivers have launched their own protest against the technology giants, citing unfair bonus structures and customer behavior as key motivators.

“They’re only interested in customer care,” says Zeeshan Abbasi, a Captain, “They don’t care about how the customer treats us. If I don’t want to take my car into a dark narrow alley with bumps and potholes, I shouldn’t have to – but if I don’t, the customer complains or rates me badly.”

Another reasons taxi drivers will not join Careem is that in order for Careem to work smoothly, Captains have to stay online so passengers can avail rides. The average taxi driver can refuse a ride without complaint, depending on whether he’s resting, eating or has fulfilled his personal quota for the day.

Careem Captains, however, are under pressure to stay online in constant pursuit of an unachievable bonus, or even by the vendor they work for.

The Careem Captain protest has spilled onto social media. Careem’s Twitter account is flooded with complaints about a constant “peak factor” that will not relent. Careem’s peak factor is an automatic feature of the app, when demand for rides is high, but Captains available are low. Rides taken during Careem’s peak factor are typically charged more – another motivational technique for Careem Captains to stay online. The peak factor complaints on Careem’s Twitter page coincide with the Captains’ protests.

“I will never join Careem Taxi,” says Sikander with a defiant shake of his head, “Never. I would rather starve and die, earning nothing, than join them.”

This is not the only issue Careem has faced recently. On April 23, 2018, Careem announced that it had faced a massive data breach that saw the information of 14 million passengers and 558,800 Captains compromised.

The company had known about the breach as far back as January 14, 2018, and chose to contain the information to “make sure we had the most accurate information before notifying people”.

Malik Ahmed Khan, Member of the

Ministry of Planning, Development and Reform, believes that companies like Careem need to be more transparent in the way they operate, particularly since data and privacy are key issues where Pakistan really does lag in terms of legislature.

He also believes, much like the PTA and ITA, that Careem and Uber are taxi companies that are technology-sophisticated. Khan says that with the companies’ arrival, the market is now offering something comfortable and secure, with better services, at cheaper rates and that attracts customers, more than anything else.

“It’s consumer choice,” explains Khan.

That Careem should thrive in a marketplace with limited options is no surprise. The platform’s biggest appeal for drivers and passengers is that it connects the two directly, making the process of catching a ride hassle-free and comfortable. Careem also offers an air of respectability to class-conscious ride seekers who do not want to be seen in a yellow Suzuki Mehran. Additionally, Careem’s security measures, such as providing passengers and drivers alike with a profile of the other and tracking routes, enhance its appeal, particularly for Pakistani women. Careem claims that 70% of its passengers are female.

More than that, historically, Pakistan’s public sector has always failed to meet the capacity of the country. Again and again, the private sector has been encouraged to fill the vacuum of the public sector’s failings. Specifically, the Pakistani government has a long history of encouraging private sector involvement in public transport.

Muhammad Ian of Massey University, New Zealand, charts the history of public transport in Pakistan in his paper, titled, “Public Transport in Pakistan: A Critical Overview”. In the paper, Ian writes that in the first few decades of Pakistan’s independence,

JUNAID IQBAL, MANAGING DIRECTOR OF CAREEM PAKISTAN, DEFINES CAREEM AS A TECHNOLOGY COMPANY THAT CONNECTS BUYERS AND SELLERS. HE OUTLINES CAREEM’S FIRST ENDEAVOR AS CONNECTING RIDE SEEKERS TO RIDE PROVIDERS. IN OTHER WORDS, CAREEM IS SIMPLY A PLATFORM, AND ANYONE IS FREE TO USE IT TO GET A PASSENGER OR A RIDE

Arshad Shah quit after a short stint as a Careem captain despite private sector involvement, the public sector had monopoly over the public transport system. In the 1970s, public transport was deregulated, which allowed the private sector to compete with public-owned bus services. Further policy changes saw the development of incentive packages specifically to lure private sector investment in public transport.

For example, the National Transport Policy of 1991 offered soft loans, reduced custom duty and tax incentives for private investors. Similarly, the Prime Minister’s Incentives Scheme to Revamp Public Transport Scheme from the same year outlined incentive packages to import taxis, buses, and minibuses duty free. It also encouraged loan arrangements from banks and allotted special registration numbers for public transport. By 1999, the government was still involved in public transport regulation, but operational duties were left to the private sector.

While the public sector has made a comeback of sorts with the Metrobus project for inner-city transport, public transport remains unregulated and largely in the hands of private sector entities and individuals. This includes taxi drivers.

Khan argues that in the absence of strong policy and regulation, taxi drivers have gone unchecked for too long, and that has resulted in drivers exploiting passengers with unpredictable fares. He also argues that taxi cabs must be fitted with meters that calculate fares based on specified rates. Typical Pakistani taxis do not adhere to that standard, even

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though the Motor Vehicle Ordinance, 1965, compels them to. It also compels them to display a table of fares on the vehicle.

“There is an under-regulation on part of the municipal authorities,” admits Khan, “but the taxi drivers don’t want to be regulated either.”

The Ministry of Planning, Development and Reform is currently working on a new transport policy that it hopes to introduce by the end of the year. Despite this, because of the 18th Amendment of 2013 which saw the redistribution of power to the provinces, Khan believes it will continue to be difficult to regulate either Careem or taxis in a uniform way, because the responsibility lies with the provinces and municipal authorities.

Khan’s statement about consumer choice does not seem to have resonated with the government. On April 22, 2017, the Punjab government announced its plans to launch the Orange Cab Scheme, which would see the distribution of 100, 000 cars on the basis of soft loans. The purpose of the scheme, like many before it, is to provide job opportunities to the country’s unemployed youth, but many taxi drivers do not feel that enough is being done.

“They should offer us opportunities that would level the playing field,” says Naseeb Ullah, a taxi driver who operates part-time in Rawalpindi and Islamabad.

He had been working privately for a family until late 2015, when he decided to drive a taxi. Unlike most taxi drivers, who take loans to buy their cars, the family he worked for helped pay for his taxi, loan-free.

Interestingly, the first Yellow Cab Scheme, launched during Nawaz Sharif’s government in 1993, distributed cabs

that offered air-conditioned taxis and had electronic meters to calculate fares.

Various factors, including government instability, policy changes and misuse of cars, saw that the scheme did not succeed.

In 2011, the Punjab government, under PML-N leadership, announced that it was reviving the Yellow Cab Scheme.

While it was more successful than its predecessor, the tail-end of the loan repayments from the Yellow Cab Scheme of 2011 coincided with Careem’s official launch in March, 2016.

“They had spent five years paying off those loans,” says Naseeb Ullah, “They had just started to earn for themselves. Then Careem came. We started losing money again.”

Many taxi drivers are skeptical that the Orange Cab Scheme will make an impact. The cars distributed in the latest iteration of the Scheme – typically Suzuki Mehrans, Bolans and Ravis – will not compete in a Post-Careem marketplace that prioritizes comfort, security and innovation. Their problems will remain the same, and their daily wage will not improve.

“Whenever a new government comes in,” says Aftab, President TDWA, “They use the taxi drivers like tissue paper and then throw them away. The Scheme is nothing but a business.”

Aftab believes that in order to compete with Careem and Uber, it is imperative that taxi drivers embrace technology. Aftab’s Taxi Drivers Welfare Association launched The Safe Taxi app in January, 2018. It claims to be the first legally run cab service app in Pakistan, with a registered list of taxi drivers with approved licenses and permits. Currently, it is available for download.

“The Safe Taxi app will protect both drivers and passengers and it will

THE DISTINCTION BETWEEN RIDE-HAILING AND TAXI DRIVING SEEMS TO BE THAT RIDE-HAILING USES AN ONLINE PLATFORM TO BOOK A CAR FOR HIRE, WHILE TAXI DRIVING DOES NOT. IS THAT A GOOD ENOUGH REASON FOR THE GOVERNMENT TO EXEMPT CAREEM CAPTAINS FROM PAYING MOTOR CAB TAXES? OR FOR CAREEM TO RESIST CLASSIFICATION BECAUSE THE LEGAL DEFINITION IS NOT PRECISE ENOUGH? OR DOES IT WARRANT NEW LEGISLATION ALTOGETHER? 34

Arshad Hussain shows his papers run legally,” says Aftab.

Aftab hopes that the Safe Taxi app will allow TDWA to segue into other issues that fall upon taxi drivers, like that of welfare and education. He also hopes to work with taxi drivers on improving their services so that they can compete with Careem and Uber.

Careem’s biggest economic contribution has been job creation. Out-ofwork, young people with university degrees use the platform to make money and experienced drivers appreciate the app for reducing the hassle in acquiring passengers. Many of Careem’s registered cars belong to individuals who have invested in car fleets to start their own vending business. Still, many taxi drivers see Careem as a threat towards their way of life.

“He’s literate, he has an education,” says Naseeb Ullah of the typical Careem driver, “He’s not at a loss for anything in life. We’re in mazdoori. We have more right to earn a living this way.”

The larger grievance seems to be that opportunities seem far and few in between for people like Naseeb Ullah, Sikander and Hussain. The young people driving Careem’s growth will move onto other things – better jobs with career growth – but taxi drivers, like many of Pakistan’s disenfranchised, will continue to toil as they have for years. In the absence of strong government policies that develop competitive opportunities and protect their livelihood. Many seem resigned to their fate, and aspire to no more than a return to a good day’s wage. n

The app is rapidly finding users, even though it has not yet customized its platform for the local market’s needs

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By Ahmed Iqbal

major chunk of Pakistan’s population is well aware of the online ride-hailing apps like Uber and Careem. However, a similar mobile app has quietly emerged in Pakistan and the overwhelming majority of people are unaware of its existence. The app goes by the name of Airbnb and it books homes, lodges and resthouses for staying.

Founded in 2008 and headquartered in San Francisco, California, Airbnb is an online marketplace which offers hospitality services specifically lodging

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and boarding. Within a span of just 10 years, the company is now valued at $30 billion.

Its use is fairly simply. A user is supposed to create an account and choose from a variety of homes, hotels and guesthouses and book which ever seems feasible to stay. After the stay, the client has to review the host as a reference for future customers. On each booking, the company charges the guest a 0-20% guest services fee and charges the host a 3% host service fee.

Globally, Paris tops the listings of Airbnb with 52,744 listings at an average price of €97 ($110) per day.

Second comes London with 28,190 listings and average price of £158 ($201) per day. Third comes New York with 24,586 listings with $186 average daily rate as reported by AirDNA, a shortterm rental data company which has extensive data of Airbnb.

Hosting is open for everyone and anyone possessing enough space for a bedroom can be a host. To register, the person has to create an account and fill a form. The pricing, availability, location and amenities are entered in this form. The host has to write a brief note on his property and upload photos for convenience of clients.

From the earnings, the company charges 3% as commission, a percentage it claims is the lowest in the industry, for its own revenue. Tourists occupy a massive proportion of Airbnb customers. As a client, the person can select from a variety of places and select which suits his needs the best.

The clients are charged a service fee by the company between the range 0-20%.

Airbnb’s quiet success in Pakistan

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sman Shamim, an American national of Lahori descent, visited Karachi for the first time in March 2018 and booked an Airbnb home in a high-end neighbourhood. Talking about his experience, he said “Having compared Airbnb to hotels and lodges, I found a vast price difference between the two and realised that I can save substantial amount by going with Airbnb instead of hotels.”

He lauded the clean room, perfect air conditioning and facility of servants provided to him by his host.

In the past few years, Airbnb has gained popularity in Pakistan. However, the company has not officially launched its application in the country because of which, the prices are in US

THE RELATIVELY LOW DEMAND FOR AIRBNB CAN BE ATTRIBUTED TO THE FACT THAT AIRBNB HAS NOT YET CUSTOMIZED ITS PLATFORM FOR THE PAKISTANI MARKET. AS A RESULT, THE ONLY PEOPLE WHO CAN BOOK ON THE PLATFORM ARE THOSE WHO HAVE CREDIT CARDS THAT WORK INTERNATIONALLY, A RELATIVELY SMALL PROPORTION OF THE POPULATION. IT DOES NOT HELP THAT THE RUPEE’S EXCHANGE RATE TO THE US DOLLAR HAS BEEN HIGHLY VOLATILE OVER THE PAST FEW MONTHS

dollars for homes in Pakistan.

A quick search showed 152 places available for rent throughout Karachi with average price of $57 per night which translates to approximately Rs7,900. The places vary from one room to entire bungalows in prime places of the city like DHA and Sea View. In 2015, Karachi only had 19 places up for rent, with most of them being the usual guest houses which used Airbnb as just another platform to advertise. Over the next three years, the listings have seen an increase of 700% in Karachi alone.

Lahore, which had 24 listings in 2015, now has 275 listings with an average price of $48, an increase of 1,145%.

Islamabad witnessed the biggest change: an over 1,500% rise in three years, from 19 listings in 2015 to more than 300 listings in 2018. The average price in Islamabad is $51.

The total listings in Pakistan have increased from 238 in October 2016 to 1,157 in June 2018 according to AirDNA. A spokesperson at AirDNA said “Total Airbnb listings in Pakistan have increased by 227% over the last year, with the ratio of entire homes and private rooms roughly remaining the same. However, the revenue per available rental has actually decreased over the same period, suggesting that there is currently not quite as much demand for Airbnb in the country as there is supply.”

AirDNA (www.airdna.co) provides data and analysis of Airbnb, displaying metrics for every Airbnb rental worldwide.

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Potential challenges facing Airbnb in Pakistan

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he relatively low demand for Airbnb can be attributed to the fact that Airbnb has not yet customized its platform for the Pakistani market. As a result, the only people who can book on the platform are those who have credit cards that work internationally, a relatively small proportion of the population. It does not help that the rupee’s exchange rate to the US dollar has been highly volatile over the past few months.

The government of Pakistan can also intervene in Airbnb’s business operations to collect taxes similar to when threatened to slap ban on ride-hailing services over tax evasion if the vehicles don’t get registered as commercial ones.

The competition that Airbnb will face in Pakistan will come from hotels and owners of farm houses, rest houses and lodges.

Internationally, the biggest competition to the application comes from a similar application name HomeAway.

However, a quick search only showed six listings of HomeAway in Pakistan.

Hence, Airbnb’s biggest competitor is far behind from it in Pakistan.

Technological teething issues

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n developed economies where Airbnb usage is more common, there have been multiple cases of hosts stalking their clients after they availed the service and vice versa. In one case, a guest stole $500 from the host after availing the service and went on to harass her by texts.

In Paris, a tenant rented her space on the application for extra cash without the consent of her landlord. She is

USMAN SHAMIM, AN AMERICAN NATIONAL OF LAHORI DESCENT, VISITED KARACHI FOR THE FIRST TIME IN MARCH 2018 AND BOOKED AN AIRBNB HOME IN A HIGH-END NEIGHBOURHOOD. TALKING ABOUT HIS EXPERIENCE, HE SAID “HAVING COMPARED AIRBNB TO HOTELS AND LODGES, I FOUND A VAST PRICE DIFFERENCE BETWEEN THE TWO AND REALISED THAT I CAN SAVE SUBSTANTIAL AMOUNT

BY GOING WITH AIRBNB INSTEAD OF HOTELS” now facing a lawsuit for the same. All this can take place in Pakistan as well.

The payment cannot be made by cash which is the prevalent payment method in the country.

In fact, cash payment is a violation of Airbnb rules according to its website. The most common payment method in Airbnb is through credit card which Pakistani citizens highly refrain from due to trust issues. The success of food-delivery and ride-hailing applications can be strongly attributed to the fact that they offer the option of cash payments. Non-availability of a cash option is one of the biggest shortcomings of the application.

The company uses artificial intelligence to match a selfie with the photo on government-issued identification documents or drivers’ licenses which sometimes result in problems. However, this does not always work, and there was at least one incident in which a host was unable to receive a hefty $15,000 payment that she earned in a year because the AI couldn’t match her selfie with her ID. The damage to property always remains a concern of the owner and there have been instances where clients damaged the furniture or other possessions of the host.

THE TOTAL LISTINGS IN PAKISTAN HAVE INCREASED FROM 238 IN OCTOBER 2016 TO 1,157 IN JUNE 2018.

LAHORE, WHICH HAD 24 LISTINGS IN 2015, NOW HAS 275 LISTINGS WITH AN AVERAGE PRICE OF $48, AN INCREASE OF 1,145%. ISLAMABAD WITNESSED THE BIGGEST CHANGE: AN OVER 1,500% RISE IN THREE YEARS, FROM 19 LISTINGS IN 2015 TO MORE THAN 300 LISTINGS IN 2018. THE AVERAGE PRICE IN ISLAMABAD IS $51 42

The market potential for hosting

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onetheless, the emergence of Airbnb in Pakistan is expected curb the monopoly enjoyed by hotels in the lodging industry because at present, some listings on the applications are half the cost charged by high-end hotels.

Accessibility is a huge advantage as a client can swipe through many possible listings by sitting at home.

Many properties offer a kitchen for convenience of clients. This way, they can feel ‘more at home’.

Airbnb is available in remote areas of Pakistan in affordable prices where number of hotels are less and charge exuberant fee. Despite all the benefits, there are many difficulties associated with Airbnb that may hinder its success in the Pakistani market. While creating an account, a front and back picture of ID card or license is required for security purposes. People of the country are reluctant to provide such information to escape cybercrimes and other threats.

Recently, commercial banks faced a security breach and hefty data was stolen which led to banks deactivating ATM services for sometime. A while back, a car-hailing service of Pakistan also faced a massive data leak after which all consumers were asked to change passwords in a bid to remain safe. Similar incidents threaten Airbnb from being successful in Pakistan.

Having said that, Airbnb appears set to make an impact on Pakistan’s hospitality industry. Airbnb seems to have a lot of potential in Pakistan and it may prove to be revolutionary for the rental market of the country. The company should consider Pakistan as a prospective market and customize its service to the needs of the local market. n

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