Profit E-Magazine Issue 75

welcome

How not to hold businesses accountable Business publications have a natural bias: we tend to be pro-capitalism, profree markets, and pro-entrepreneurship. What we at Profit try to do is not be pro-business. Being pro-free markets, and pro-business can be quite different.

We recognise, perhaps more than most, that Pakistani business consists largely of rent-seeking industrial aristocrats who inherited their fortunes and are globally uncompetitive. We have no intention of defending the worst of their practices.

Consider the Abu Dhabi Group, whose far from ideal business practices we have taken on in this issue's cover story. When one of the group's many businesses plateaus, scrapes by or straight-up tanks, it is not just the group's money that is whisked away, it also affects the lives of the many employees and sub-contractors working there. And also the consumers and customers of those businesses. And, most importantly, the smaller shareholders. Consider Wateen Telecom, whose enthusiastic IPO was followed by the same unsure attitude that has become the group's hallmark, resulting in the stock losing around 70 percent of its value in a matter of months.

Consider also the acquisition of Careem by Uber, on which we have a story in this issue. Whereas the deal has been hailed by most and seen as an inspiring success story for a startup whose founders included a Pakistani, we at Profit have some reservations. We fear that the monopoly of sorts thus created is going to be bad for most stakeholders. And we wish for the Competition Commission of Pakistan, yes, the same CCP which, in its different avatars the world over, is the bane of Big Business, to take a good look at the structure of the industry now and see whether the magic of the free market is still unfettered.

There are, however, some instances where businesses in Pakistan really are treated unfairly, regardless of one's position on Big Business. The National Accountability Bureau's treatment of the Engro Corporation, its executives and now its major shareholders, we believe, is one such instance.

In an issue last month, we reported on how former Engro Elengy CEO Imranul Haque was imprisoned without charges – a violation of his constitutional rights – in an effort to build up a case on what appear on the surface to be no real charges against former Prime Minister Shahid Khaqan Abbasi. And now comes the news that Engro’s chairman and largest individual shareholder Hussain Dawood has been summoned for questioning by NAB. The inability of NAB to build up a case and charge any of these individuals is tantamount to harassment. What is worse is that it is harassment of a business – and individual executives and investors – that have been law-abiding to a fault. When the government has reneged on its contractual obligations to

them, rather than bribing their way to a solution, they have politely pleaded their case before government officials and waited for the government to see reason.

Engro is the kind of business Pakistan wants and needs: a large, well-capitalised organisation that recruits talented individuals, pays them well, and gives them autonomy and money to help solve some of Pakistan’s biggest economic challenges. The liquefied natural gas (LNG) terminal that Engro set up, for instance, is one of two terminals that together help fuel nearly 25% of Pakistan’s electricity supply.

Bear in mind, we have nothing against accountability. But the sheer manner in which the exercise is being carried out reeks of a Gestapo-like attitude. Businessmen are virtually hauled away from their offices, with the news being leaked to the media almost immediately. These leaks don't have any details about whether it was initial, exploratory questioning following a tip-off, an actual investigation or proceedings following an investigation that yielded 'smoking gun' evidence.

If the government’s misguided “accountability drive” (which is really just political revenge fantasy on the part of the ruling party) cannot even spare the best from within the business community, who is safe? Who will feel confident investing in the country when the government not only reneges on its promises but actually has the gall to harass and imprison people who had the temerity to do business with it.

The pile of cash that Hussain Dawood was sitting on, which had led many, including Profit, to speculate where he was going to invest it, isn't going to be utilised in Pakistan after all. Seeing the investment climate – and the treatment meted out to investors by the state – he has apparently decided to look for investment avenues abroad. He has already gotten a paid membership of the World Economic Forum – the only Pakistani to do so. Rather than making the country attractive enough for foreign direct investment, we seem to be driving out local businessmen.

Executive Editor

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Syeda Masooma l Muhammad Faran Bukhari l Taimoor Hassan l Abdullah Niazi l Ahmed Jamil Bilal Hussain 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 Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

FROM THE EXECUTIVE EDITOR

7

8

This chart shows the amount of money Pakistanis spend on traveling abroad – including air fare and any amount spent outside the country – as well as the amount of money spent by foreigners on their travel to Pakistan, both their travel costs as well as what they spend inside the country. The chart dispels the myth that Pakistan’s tourism industry was negatively affected by 9/11. Foreign tourist spending on Pakistan has continued to rise since 2001, with dips ordinarily coinciding with recessions in the United States and Europe. Pakistani travel abroad, on the other hand, has taken off since 2002, once and – barring economic slowdown-related drops in 2008 and 2013 – has continued to rise, once again belying the notion that a Pakistani passport serves as a barrier to international travel.

News IN NUMBERS

9

Continuing Profit’s theme of charts full of depressing economic data, this is one of the most depressing charts depicting Pakistan’s economic priorities: Pakistan’s research and development spending is among the lowest in the world, lower even than neighbouring India, and by a considerable margin. India currently spends 2.6 times what Pakistan spends on research and development, China spends 9 times more, and the United States spends 11.9 times more. Worse still is the fact that Pakistan’s R&D spending as a percentage of the total size of our economy has declined to one-third of what it was about a decade ago, meaning the country is actually decreasing the already low levels of spending on R&D.

News IN NUMBERS

IN CAREEM’S ACQUISITION,

WILL

UBER CREATE A

MONOPOLY? Uber’s acquisition of its main rival in Pakistan has meant that there is effectively no competition left in the ride hailing market. As the Competition Commission continues to make its deliberations, are we looking at new entrants?

I

By Syeda Masooma

n April this year, the ride-hailing firm Uber acquired the rival company Careem for $3.1 billion, with the deal between the two set to be finalised in January.

Essentially, for Pakistan, this means one company is now dominating the ride-hailing service industry. The two managements have recently announced that they will continue to operate separately with different apps, platforms and offers, but for all intents and purposes the competition is dead. They are planning a scheme to be in cahoots, and soon enough they might be one and the same thing in all but name.

Pakistan, of course, is not the only country to face this little situation. Uber and Careem have been operating in opposition to each other in a number of middle eastern countries. With the international merger that took place, the issue of competition death arose in all of these

TECHNOLOGY

places, spurring relevant regulators and watchdogs into action, and terrifying the ride hailers as to the future of their merger.

While other countries have already made their opinions of the merger and its possible fall outs known to the two companies, Pakistan still seems to be stuck in the procedural doldrums of deciding how to go about this budding monopoly. We are still deliberating on how it will impact the market, and whether the Competition Commission of Pakistan (CCP) will allow this merger and if it does with what conditions, and how the ride-hailing services market will respond.

One of the potential impacts of this acquisition is the creation of a gap in Pakistan’s market that can be filled by new players.

However, that might be easier said than done, considering the varied factors that have gone into making Careem and Uber the brands that they are today.

The obvious dearth of public transport

and alternate mobility options mean that at least in the metropolitan cities of Pakistan, there is a lot of untapped potential for such a player, but at the same time, the financial and in-kind costs of utilizing that potential might not be duck soup.

Profit set out to dig into this evolving market, the potential it holds for new players, and the consequences this merger will have for captains and customers alike. Here is what we found.

Careem’s official launch in Pakistan took place in May 2015. Uber followed almost a year later when their app was launched in March 2016. Needless to say that when these companies began operating in Pakistan, there was no shortage of market potential but there were several hurdles to be overcome as well. Security and trust remained the top concerns and the market was supposed to be prepared for such a business to be accepted widely. Careem and Uber not only needed to convince customers,

11

called ‘riders’ to use their applications, but they also had to convince drivers, called ‘captains’, that it was a worthwhile means of earning.

The Captains

O

ne of the first tools used by these companies, back when they first arrived, was to shower captains with bonuses, minimum guaranteed income and profits while at the same time treat customers with free rides, promotion codes, and even gifts. According to the dozens of captains interviewed by Profit, the initial monthly ‘income’ for captains easily averaged north of Rs 80,000 and their take home ‘profit’ usually had a floor of Rs 50,000.

An account, verified by Uber captains and

by Nomaan Ahmed – owner of Ride Hailing, a company that provides registration services for captains for Careem, Uber, Roamer and others, Uber paid Rs 500 to captains simply to “stay online” in its initial days. This meant that a driver only had to stay logged in on the app all day, and even without taking a single ride or even stepping out of home he could earn Rs 12,000 per day.

Details on the exact monetary rewards to Careem captains are a little hazy, but they have not lagged far behind Uber, with their bonuses on meeting target number of rides quite handsome in those early days.

“We had to do only a couple of rides per day to meet our targets and it could be either in terms of the ride fare target or the number of minimum rides. And once we got our targets we not only got bonuses for that but even for maintaining our rating,” said one Careem Captain who has been working with the company since it first launched.

“Sometimes customers get annoyed when we ask them to rate our ride but for us higher rating really meant more money.”

Of course, nothing ever lasts, and both Careem and Uber eventually started phasing out these high bonuses and easy days to their

12

“There is also somewhat of a consensus among the captains that both these companies, although apparently still operating separately, are now squeezing the benefits. At the same time, customers also feel that Careem’s previously immensely helpful helpline is now moving towards the potentially useless model adopted by Uber and Uber’s lower fixed rates are now rising to meet the rates at par with Careem” captains. And while this was not unexpected, a point of interest is that such rewards and perks for captains have been decreasing at an even more accelerated speed than before now that the two companies have come together.

Just the announcement of the merger seems to have sped this decrease up faster than it would have happened otherwise. One wonders whether they are already collaborating, even though that is a tall claim to make. But according to the responses collected by Profit through a survey from captains, the average revenues began to fall from 2018, but took a sharper hit in 2019 - the exact merger announcement dates.

At the same time, the advantages and perks being offered to captains have seen a notable downfall as well. This, coupled with the rising costs of fuel, car maintenance, and interest rates on the cars themselves, have undoubtedly spelled less and less income and profits for captains.

A Careem captain driving a 2006 Suzuki Mehran in Islamabad, speaking on the condition of anonymity said, “I rarely get rides from dilapidated areas anymore. Initially smaller cars were targeted to the mass market and we used to get so many customers, from every nook and corner of the city. In fact, I used to spend many days close to the Daewoo station and people coming to Islamabad from far away areas used to be my biggest riders” he said.

“Now the prices have gone up that I pick up people from Defence, Cantt, and Diplomatic Enclave. Many people don’t even bother now that the car is small, they just want to get dropped on their destination in the lowest possible prices.”

He believes that captains with smaller cars may have taken the biggest hit, because the high prices have almost wiped out the lower segments of customers, while the “richer riders usually prefer Go and Go+ as their staple rides instead of coming to us.”

A note of caution here for the readers. The falling number of rides is not synonymous to the falling customer base, rather with the number of captains being higher than ever before. The survey responses collected from the customers show that on average a customer took 5 rides per week in 2018 which is now twice that much.

(More on the merger impact for customers in the next section).

Another captain named Umer Farooq, driving a 2017 Honda Civic for both Uber and Careem, said, “I have not seen any decrease in the number of customers despite the higher price. Careem has more brand loyalty than Uber generally, even though for us as captains Uber has been better.”

He said that when he started working for Uber in 2017, the bonuses were much higher and the payments were also quicker, but with time the number of customers has increased so at the end of the day his sum total of earnings has been rather unaffected.

“Careem allows waiting time and many people take Careem if they have to go to multiple destinations. Uber, on the other hand, gives a fixed amount when customers book it so on a day when there is heavy traffic, I get more Uber rides than Careem,” he said, “Customers have also gotten smarter now so they know how to choose between these two options.”

However, he said that the costs of maintaining and driving a car have gone higher than the in-

comes that ride hailing generates. “You know how the petrol prices have gone up, then car registration and taxes have also increased, but neither Uber increased its bonuses nor Careem increased its ride rates comparable to that.”

Another captain for Careem, speaking anonymously said, “I have worked as a driver in Dubai for eleven years. I came back last year and got registered with Uber. They were paying better money and bonuses than Careem. One day, one of my children took hold of my phone and randomly texted a lady that I had given a ride to.

She complained and Uber cancelled my registration. The message was not even a word, it was jumbled up letters and gibberish. Now I have spent so much money on this car and I have to work to feed my family so I am doing what I can, even though Careem does not pay as much as Uber does.”

Nomaan Ahmed takes a pro-Uber/Careem stance here. “I have worked with Uber so I understand how they worked and how they are working. And it is only reasonable that they moved from their initial brand strengthening strategies to more expansionary and earning strategies. How long do you expect a company to simply keep throwing money?”

The Customers

T

he survey responses and interviews from the customers of these ride-hailing services all point out to one glaring fact – “the prices are rising and the service standards may also be deteriorating, but in the absence of an equally safe and reliable alternative, customers will continue to use the available service”.

The pricing effect seems to be most pronounced right after Uber took over Careem.

In addition to pricing, the quality of

overall service, the condition of cars available, and helpline services have all seen a marked decrease from 2018 to 2019, and more so in the post-merger era. But despite all of it, there still seems to be more apprehension than excitement among the customers over any new available service. While more than half thr customers expressed willingness to try a new service if it becomes available, almost everyone said they would do so conditionally.

“Uber or Careem have now become necessities instead of a facility to be availed only when needed,'' said Mansoor Aftab, who commutes around 35 kms each day in Lahore on either of these services.

“The costs of taking a Careem or Uber have gone up substantially in the past few years, but I would still prefer calling one of these instead of taking my own car. It’s not just the car and the fuel, but I also don’t have to worry about parking spaces, my car getting knocked up on a heavy traffic road and so on.”

Another thing he said, which was corroborated by at least 5 other Careem/Uber users was that the Rs 50-100 one might have to pay over for peak factors didn’t really matter at the end of the day as long as you were getting your

service. What may be inferred from this is that offering lower prices on newer services – unless accompanied by at least an equal standard of service – might not allow the new players any significant advantage. This much for the customers who can afford their own car as well, but what about those who need a taxi service for financial reasons as much as for convenience?

Naziha Sikander, a primary school teacher based in Islamabad, said, “If I sometimes get late when on a school function etc. I simply call a Go+ or a Business car if I feel I need a more secure ride. I would not call Uber, not just because I usually don’t like their cars and captains but simply because they don’t have a helpline and their app just looks more complicated to me.”

There were also other factors, such as Uber not having a wallet system up until very recently, which makes the ride a hassle in case she doesn’t have change and has to travel late at night when she cannot easily stop at a store to get it.

“I will not even try to use another app, especially at night, until the brand name has become as well known for its service and security as Careem. I’m not always happy with the cars, or the drivers’ ability to navigate, but safety is my main consideration.

I will pay a little extra if that means peace of mind.”

Another rider, Wasif Jamil from Karachi said, “Careem bike is perhaps the easiest form of travel for me on the crowded roads of Karachi. It costs much less than taking my own car and even on a hot sunny day, it is better to be on a bike than in a car whose AC might or might not work”.

He said that he has also used services from Bykea and Daewoo cab when in Lahore or Islamabad,

TECHNOLOGY

but he has found Careem to top them all. “The thing with Daewoo is that they only have the bigger cars. That is not something a regular customer would use on a daily basis.

Bykea has a good delivery time and good tracking services, but personally I am so used to simply using the one app that does everything that I find myself often calling Careem delivery just because I am using the app otherwise during the day.”

How are the authorities handling the merger?

H

alf of the interviewed customers believe that this merger should not be allowed to go through. The other half would like to see this merger go through under certain restrictions.

But it is not the customers who will have the final sayy. The parties that can decide on the matter still have their jury out. In the first phase of evaluation, the Competition Commission of Pakistan advised against allowing the merger. A copy of the ‘CCP's order concerning the pre-merger application of Uber and Careem’ provided by the commission states that “the Commission finds that the proposed transaction is likely to substantially lessen competition through the creation of strengthening of a dominant position in the relevant market.”

As a result the Phase II review for the merger has been initiated, which is a rare event for the commission.

Legally speaking, the CCP does hold the power to implement restrictions upon Uber and Careem before allowing the merger to proceed, but practically there might not be much hope.

And this is not just because the companies operate internationally and the basic merger transaction is beyond CCP’s control.

Syed Raza Hassan Shah, Senior Associate litigation at Ali Masood Hayat and Co. said, “Both these companies are from outside Pakistan so at the roots of it CCP doesn’t even come into play. If you consider the market, even then the argument of whether a monopoly might be created or not depends on how much market share they had in the first place.

Uber had a much lower share than Careem, and even Careem itself was not serving to enough customers in enough cities to be known as such a company that can behave as a monopoly. It is still quite a fair market and the barriers to entry are more to do with whether other players want to enter or not.”

14

“However, considering purely how much control CCP might have, to be frank, they can’t do anything. The best that they can do is possibly put them into a special service category, or try to control the prices they offer. Maybe they can suggest an added tax or service charges to the new Uber-Careem, but at the end of the day that will cause more harm than benefit. The more important aspect for CCP might be on the data that will now be under one company, and it might be something they are not even concerned with as yet, at least not as much as they should be,” he said.

The latest update in this saga came from New York, where Uber CEO Dara Khosrowshahi met Prime Minster Imran Khan and expressed plans of creating half a million jobs in Pakistan before the end of the tenure of the current government. The CCP has refused to comment on this development and whether or not it has the potential to skew CCP’s decision in favor of the merger.

The commission, however, did say that they are in talks with other countries where Uber and Careem are both operating and they are considering their examples. Qatar has out rightly blocked Uber’s acquisition of Careem, while Egypt’s competition watchdog issued multiple statements warning both the companies against the merger, and hinting that the two companies might face fines of $28 million each if they proceed with the merger. The UAE is the only one to give the merger a green light.

What of the market then?

It might be impossible to quantify the degree to which the financial benefits to captains have been reduced, or how much more Uber and Careem are making now that the promo-codes have reduced drastically in their frequency as well as the time period for which they are allowed.

There is also somewhat of a consensus among the captains that both these companies, although apparently still operating separately,

are now squeezing the benefits. At the same time, customers also feel that Careem’s previously immensely helpful helpline is now moving towards the potentially useless model adopted

by Uber and Uber’s lower fixed rates are now rising to meet the rates at par with Careem.

What one may derive from these changes is that even if Uber and Careem want to show the country that they are operating as independent companies, competing with each other, in truth there is little to no challenge in the market that might force them to keep their services captain and customer friendly. No one from Uber or Careem was available for a comment on their perspective on the impacts of this merger on the market.

Vacuum, do your thing

I

f you're an entrepreneur, you might just be licking your lips. After all, what does a vacuum mean if not that something is going to fill it? With all this laid out, is this a good time to capitalize on the space created from Uber’s takeover of Careem, or is the market looking at tough times ahead?

Discussing the challenges that the industry may pose to investors, one might think of the cost structure first. However, considering that it is inherently an internet application, the basic capital expenditure is not likely to increase Rs 150,000 according to Maqbool Alam, a certified mobile application expert.

“To be honest, a simple app like Careem can be manufactured from somewhere Rs 50,000 to Rs 250,000 depending on how sophisticated you wish to make it.” However, the data bank and the servers needed to operate the application is where the money and the challenge lie.

“There is so much data at the back end, that not only needs to be operated but also stored and saved and possibly even used in future algorithms as well. For that, I suspect, even

chance that they will want more and the current situation will probably not be enough for them.

He also informed that back when Uber was still strengthening its foothold in Pakistan, “there were fleet owners and there were individual drivers. Fleet owners were paid higher than individuals but the aim was all the same, to bring more and more captains in. With time that had to change. How long do you expect a company to simply keep throwing money.”

Keeping up with the fact that drivers will most likely be attracted to higher income, one new player, Timesaco, has offered 98% of the earnings to the drivers. In comparison, Careem takes approximately 25% while Uber gives 20% of the fare amounts. [These numbers were shared by the captains and no official comment was received from Uber/Careem until the publishing of this story].

“Honestly this 98% is a marketing tactic which might work for Timesaco because they will get their membership and franchise money, but where will this income comes from. Will the customers take these new services, and will these drivers be able to make money in the first place, that is the main question?” the basic operational expenditure would be in the neighborhood of Rs 4-5 million. But even that is a conservative estimate.”

Nomaan Ahmed has similar views. “Anyone can make an app. That is not even remotely a barrier to enter the industry. In fact, you mentioned Timesaco and they are selling out their franchises for Rs 500,000 each and anyone with spare money lying around or feeling adventurous enough because someone showed them high dreams would easily be able to bring up their servers and such. The art is in creating a brand image and convincing captains and customers to come.”

He said that Careem and Uber came to Pakistan with an already established reputation, and even though they had to convince the customers here of the service itself, the brand existed already.

“These new players will have to come up with something way more than lower prices to attract customers away from the already existing services.”

Mansoor Ahmed concurs, “I don’t see myself or frankly anyone around me jumping on to the next service available just because the price tag is lower. Of course I want lower prices, but I want without having to worry about the car and the service that I will be taking.”

The dozen or so Careem captains interviewed by Profit, however, had a different take on the matter. They all seemed too eager to experiment with the options that may become available to them, and while more than half of them were offering services on both Uber and Careem, none of them have as yet signed on for

any of the new players that have entered or are entering the market.

It seems that they are willing to risk joining a new platform in exchange for the established one they are on right now, simply because it affords them new opportunity. And as many have complained, Uber and Careem are great when you first join, but slowly but surely become stifling.

“Both Uber and Careem threw money at the captains when they first came here. Uber gave Rs 500 to its drivers per hour, just to stay online. Now imagine, that just by staying online the captains earned Rs 12,000 every day.

I have worked with Uber so I am more aware of their processes but Careem also must have spent loads of money to bring customers into their fold in the first place. However, once they reached their set number of captains, the focus obviously moved away from attracting to expanding and that’s when the minimum number of rides came up.”

He said that the captains joining now have heard stories of those times and now irrespective of what they might get, there is a

What are new players offering?

T

here are a number of players who have either already started providing ride-hailing or are on the verge of doing so. Some of the names that you may have heard of are Airlift, Buraq, Siayara, and Roamer. Of these Airlift seems to have gained the most attention among the customers surveyed by Profit. Let’s briefly go over each of these and what they might have had to offer to ‘captains’ and ‘riders’.

Airlift Airlift has positioned itself for groups of customers. The company uses coasters and Hiace vans offering 18 to 22 seats, on several high-demand routes. This is one variation of the car-pooling system but follows the mobile app mechanism allowing customers to call the services upon their preferred locations instead of having to go to a designated bus stop. Unlike traditional wagons and coasters, Airlift also promises a certain seat, air conditioning, as well

“There are a number of players who have either already started providing ride-hailing or are on the verge of doing so. Some of the names that you may have heard of are Airlift, Buraq, Siayara, and Roamer. Of these Airlift seems to have gained the most attention among the customers surveyed by Profit” TECHNOLOGY

as live tracking. When Airlift was launched, it has to go through the unavoidable phase of offering ‘free services’ which it did by 5-free rides offer upon downloading the app. The service, however, has pre-decided routes which mean that it is only available at certain times and at certain places, allowing for a comfortable and reliable service but only in limited capacity. At the same time, the fare is set at Rs 50 which makes Airlift an attractive service to a much wider category of customers than Uber or Careem. Airlift might be seen as a daily commute service for specific routes, at least for now.

Siayara Siayara has come as somewhat an exact alternative to Uber and Careem. At the time of its launch in July this year, its initial fleet featured approximately 2,000 cars divided into similar price and quality categories as the aforementioned companies. The selling point that Siayara chose was lower fares and absence of peak factors that increase the costs of the customers.

The service is operational only in Karachi at the moment, and the market might have excitedly welcomes the service but the Facebook posts by customers hint at dissatisfaction. There are demands of money refunds and complaints of extra charges as opposed to the fare being shown on the app – the usually complaints that Careem service is known to resolve in a matter of moments and Uber is known to not pay any heed to. There is not much else known about Siayara, and their helpline has also proven to be

16

less than useful in yielding any official response or any further contact details of the management.

Buraq This ride-hailing service comes to Pakistan from a Chinese company called Timesaco, which is a company offering an infrastructure of logistics and transportation. Timesaco is using ride-hailing as a means to an end instead of the end itself, which according to its founder Donald Li, allows him to offer incredibly lower rates. Timesaco has started to position itself for the lower end of the market in its taxi cab service while it aims to gain its financial strength elsewhere. It is important to note here that the lower prices is not just to attract customers, but Timesaco has added a second layer for the benefit of the drivers as well. While Uber/Careem take approximately 30% to 35% of the earnings’ share from captains, Timesaco has decided to take only 2%. “We are going to give 98% to the drivers. They will get 97% in cash and one percent goes into their drivers’ fund that includes

medical facilities, insurance, and discounts,” Li informed. On the competitor landscape he said, “We don’t think we have a competitor. We will say we have partners. And even if there is competition, it will be something that will help us. More players will inform more consumers and the entire market will develop.”

Roamer This one is a chauffeur-driven car service that customers can hire for as long as a month or as short as an hour. In simpler words this is more like rent-a-car than the services offered

by Uber or Careem. Roamer is targeting the customer group that might require a car for a certain period of time instead of a certain specified trip, positioning itself between the markets served by the regular rent-a-car companies and regular ride-hailing-service companies. The product strength here is neither the lower price nor the better tracking, rather this is where customers get a car and a driver for a particular length of time. The only overlapping part with Uber and Careem may then just be the use of a mobile application and possible online payments but it does not pose a direct competitive challenge to either Uber or Careem.

The list is not exhaustive, as many other entrepreneurs have also detected the scent of potential, but the bottom line remains the same.

Be it the new Carruba, Mylift, or any of the previously mentioned companies, the task of convincing new captains and customers is going to be a costly affair and at least in the short run Uber, Careem, or Uber-Careem - however they may operate - seem to be operating in a quite independent competition free market. n

TECHNOLOGY

HOSPITALITY MORE THAN JUST A WORD True hospitality comes from the hea .

From a genuine desire to make sure our guests always feel totally at home.

When it comes to inflation, food companies absorb some of the blow Gross margins in the industry are down as costs rise but companies are reluctant to pass on the increases to consumers

I

t is a slow time in the packaged food industry as the combined effects of a massive currency devaluation and rising inflation ripple through the economy.

Companies in the sector find themselves unable to pass on the effects of their rising costs to consumers, leading to a hit to their profitability.

In the first half of calendar year 2019, publicly listed packaged foods companies saw their gross margins decline by 425 basis points (one basis point equals one hundredth of one percentage point) to 24.75%, according to an analysis by

“We expect the sector’s margins to remain under pressure in the coming quarters on account of (1) slowdown in economic activity, (2) inflationary pressures and (3) rising working capital debt” Amreen Soorani, deputy head of research at JS Global Capital

18

JS Global Capital, an investment bank.

“Cost push inflation continued to shrink gross margins by 425bps year-over-year to 25% as we believe food companies prefer volumetric increases over price increases by passing incremental costs to the end consumer,” wrote Amreen Soorani, JS Global Capital’s deputy head of research, in a note issued to clients on September 29, 2019. Soorani’s analysis examined the effects of the slowing economy on 10 of the largest consumer food companies.

Soorani also found that packaged food companies were struggling to grow their sales.

425 basis points The amount by which gross margins for Pakistan’s packaged food industry have declined in the first half of calendar year 2019 compared to the same period last year, according to an analysis by JS Global Capital

Revenue growth for the industry stood at an anemic 2.7% in the first half of 2019 compared to the same period last year, suggesting that companies were perhaps well-advised in their strategies to not pass on their cost increases to consumers.

Gross margins refer to the difference between the price at which a company’s products can be sold and the cost of manufacturing those products. It includes direct manufacturing costs such as raw material costs and the costs of operating the factory that produces the product, but not indirect costs such as the company’s headquarters’ staff, marketing budgets, and other expenses such as income taxes and the costs of debt.

Market analysts use gross margins as a proxy for the pricing power of a company. In a market like Pakistan, where packaged food remains a small fraction of the overall market – in most segments, not exceeding 10% of total consumption – while individual companies may have strong brands and good market share within the packaged food space, they remain in a highly competitive overall food market where each company’s share is miniscule.

For example, FrieslandCampina Engro Pakistan and Nestle Pakistan are a virtual duopoly in the packaged milk business. But both companies combined – along with every other packaged milk company – account for less than 8% of all milk consumed in Pakistan. So while each company can claim close a 40% market share, each company accounts for approximately a 3% market share in the overall milk market in Pakistan.

In addition, while decades of advertising may have convinced at least a portion of the Pakistani public that packaged milk is more hygienic and nutritious than unpackaged milk, the vast majority of the public remains either unconvinced, or else at least unwilling to spend the extra money it takes to buy a carton of milk rather than running down to the local milk shop and getting a litre of milk in a thin, clear plastic bag. That means, effectively, that the market for packaged food is not differentiated from that of unpackaged food, particularly for basic items like dairy products. And in such a massively

fragmented market, where he closest thing to perfect competition exists, every individual seller of milk – whether it be global food giant Nestle or the local milkman – is a price-taker.

No individual company has the ability to set the market price, and hence when consumer spending ability declines due to the economic slowdown, packaged food companies cannot protect their margins and are forced to absorb the increases in their cost of production.

Paradoxically, this means that the larger food companies are actually shielding consumers from how bad inflation might be if they raised their prices in accordance with their cost increases.

Not all of the news for the industry was bad, however. It appears that while nearly every company faced gross margin compression, the slowdown in revenue may be concentrated in Nestle Pakistan, which saw its revenues decline by 7.7% in the first half of 2019, compared to the same period last year.

Excluding Nestle’s decline, the packaged food industry saw its revenues increase by a healthier 13% in the first half of 2019 compared to the same period last year.

Indeed, Nestle Pakistan and Fauji Foods were the only two companies among those analysed that saw a decline in revenues. The rest

saw increases in revenues, ranging from a meagre 2% for National Foods to a significant 39% for At-Tahur Ltd. Margin compression, however, was a story that virtually all companies shared, with only two bright spots. “At-Tahur was also one of the only two companies (the other being Matco Foods Ltd , which saw a 73 basis points increase year-on-year in its gross margins) that managed to expand its gross margins (up 105 basis points year-on-year) during the same period,” wrote Soorani.

Analysts a JS expect the sector’s profitability to remain muted over the coming year, however.

“We expect the sector’s margins to remain under pressure in the coming quarters on account of (1) slowdown in economic activity, (2) inflationary pressures and (3) rising working capital debt,” wrote Soorani.

That depressed performance in both revenue growth and margins has impacted stock prices of the publicly listed packaged food companies as well, with the sector lagging the broader equity capital markets. While the benchmark KSE-100 index has declined by 9% over the first half of calendar year 2019, stocks of food companies are down an average of 22% during the same period.

Pakistan’s banks are better positioned to withstand the recession

Non-performing loans are rising, but at a slower rate than the 2008 recession, largely due to better balanced and managed loan portfolios

I

t is the worst recession that Pakistan has experienced since the 1971 war, according to some measures, and one would typically expect the banking sector to be badly affected. But while non-performing loans are increasing at the banks, the 2018-19 recession appears to have had a tamer impact on Pakistan’s banking sector than the relatively

milder 2008-09 recession.

Non-performing loans for the banking sector jumped by 12.2% during the first half of calendar 2019, up to Rs697 billion from Rs624 billion at the end of 2018. This marks an increase in the infection ratio of the banking sector’s loan portfolio, up from 8.0% to 8.8%, according to research by AKD Securities, an investment bank.

Safe assets

46.5%

The proportion of the banking sector’s investible assets that are either in government bonds or loans to the government and government-owned companies at the end of calendar year 2018

“Recent macroeconomic and sectoral trends do indicate rising credit risks that can pierce into banking sector profitability over the coming quarters. However it could be on a lower scale than in previous down cycle where NPLs soared at a three-year CAGR [compound annualised growth rate] of 27.7% between 2008 and 2010, translating into cost of provisioning of 1.5-2.0% [of assets],” wrote Hamza Kamal, a research analyst at AKD Securities, in a note issued to clients on September 27, 2019.

The infection ratio measures the proportion of a bank’s loan portfolio that has been classified as non-performing, meaning the bank realistically no longer expects those loans to be paid back. This does not necessarily mean that the bank has stopped trying to get repaid for those loans, just that it recognises that the probability of being repaid is very low.

The relatively mild nature of the loan losses at the banks is likely the result of a much more conservative lending culture at Pakistani banks than in the previous economic boom.

Prior to the 2008 recession, Pakistani banks had been taking significant risks with their balance sheet in virtually all areas. On the corporate lending side, banks were lending to large companies for big, audacious industrial projects that, if poorly timed, can result in significant losses. And banks had significantly larger small business and consumer lending portfolios, which tend to see higher default rates during economic slowdowns.

And that does not even include the fact that, prior to 2008, banks were very actively using deposits to invest directly into the stock market, an activity that has been severely curtailed by regulations issued by the State Bank of Pakistan (SBP) in the aftermath of the financial crisis.

As of December 31, 2007, banks in Pakistan had deployed 9.1% of their investible assets into consumer lending, and 2.3% in stocks, according to data from the State Bank. Investible assets are defined as the financial (non-physical) assets of the banks.

And that number for stocks likely underestimates the extent to which banks were actually

CONSUMER GOODS

investing in the stock market. Sources familiar with the matter tell Profit that banks had a habit of having large proprietary trading books for stocks that they would reduce to much smaller amounts by selling off their shares just before the close of a quarter so that the regulators at the SBP would not catch wind of how much they were investing.

After the crisis, banks have become significantly more conservative in their lending practices, scaling back on consumer lending and cutting corporate lending to only the most plain-vanilla working capital financing loans (loans which finance a business’ running cash needs rather than financing expansion plans). The bulk of bank lending is now to the government or state-owned enterprises.

Data from the SBP shows that consumer lending now accounts for only 3.4% of the banking sector’s investible assets, while investments in the stock market are down to 1.8% of invest-

ible assets.

Meanwhile, the banks’ investments in government bonds, as well as loans to the government and government-owned companies, accounted for 46.5% of investible assets at the end of 2018, compared to 23.7% at the end of 2007.

Analysts generally agree that the banking sector is taking less risk than it did prior to the previous recession. “Our moderate expectation [for bank loan losses] is on the back of, 1) diversified exposure mix (share of top three sectors that occupied ~50% of total financing in 2007, now occupies one-third of overall loans), and 2) higher exposure to government-guaranteed financing (power sector loans’ share in Jul’19: 8.6% vs. 3.0% in Dec’07),” wrote Hamza Kamal, the analyst at AKD Securities.

Indeed, the banks have become so conservative in their lending practices that loan losses on their consumer lending portfolio declined during the recession. In the first six months of

2019, he banking sector’s non-performing consumer loans declined by 6.3%, the only sector to witness such a decline as every other sector saw an increase in default rates.

This is in part due to the fact that the banks appear to be getting somewhat better at consumer lending and are only lending to relatively lower-risk borrowers.

Among the sectors that have suffered the worst increases in defaults are the power generation and electronics sectors, both of which saw an increase in defaults of over 20% during the first half of calendar year 2019. Even worse, however, was agriculture, where defaults have gone up by 28.5% during the same period, according to an analysis by AKD Securities.

The relative stability of the banks suggests that even as interest rates rise, banks are unlikely to see a significant erosion in their profitability, and are likely to be well-positioned to take advantage of any economic recovery. n

“Recent macroeconomic and sectoral trends do indicate rising credit risks that can pierce into banking sector profitability over the coming quarters. However it could be on a lower scale than in previous down cycle where NPLs soared at a three-year CAGR [compound annualised growth rate] of 27.7% between 2008 and 2010, translating into cost of provisioning of 1.5-2.0% [of assets]” Hamza Kamal, research analyst at AKD Securities

20

BANKING

22

By Babar Nizami & Abdullah Niazi

CONGLOMERATES

I

f you were to pick an area of Lahore to live in, an area for the elite of the elite – for titans of industry – where would it be? You might think Defence, but that just reeks of new money, as impolite as it is to say. You might then argue Model Town, but it is not nearly grand enough. Gulberg is not quiet enough, and Shah Jamal simply not clean enough.

Where then do you build a house if you have made it in Pakistan? And by ‘made it’, we mean really made it. Cigars with the President after a work and a dinner date with the Chief Minister on what you would call a lazy Wednesday made it.

The answer, of course, is Cantonment – the historical and de facto hub of Lahore’s socio-economic elite. Two houses in Cantt are central to this story. Both massive constructions with sprawling lawns, high ceilings, and the gaudiest, most expensive decor you can imagine.

Both are also relatively new.

The men living in these houses are Bashir Tahir and Adeel Bajwa, and the similarities between the two men are almost as apparent as the polite antagonism between the two. Both men are of, not humble, but also not particularly well-off beginnings.

Both lived in Iqbal Town, a solidly middle-class Lahore neighbourhood. Both rose high in the world of international business. Both moved to Cantt after making their fortunes.

Both faced a meteoric crash. Both are currently condemned to a life of early retirement. Both are opposing parties in a criminal case regarding land grabbing. And both owe their dizzying highs and eventual abysmal lows to one man: Sheikh Nahyan bin Mubarak Al Nahyan.

Sheikh Nahyan, if you have not heard of him, is a member of the extended royal family of the United Arab Emirates and is currently the Emirates’ Minister for Tolerance. Back in the 1980s, he was the up and comer of the royal family, not entitled to the wealth and power that his second-cousin Khalifa bin Zayed bin Sultan al-Nahyan, the current President of the UAE, was set to inherit.

But cousin Nahyan had other things going for him. For one thing, he had a good education, having managed to graduate from Magdalen College at Oxford University (the same one that has amongst its other alumni, Erwin Schrödinger, Oscar Wilde, and King Edward VIII of England). Nahyan developed a keen eye for business, and would go on to found the Abu Dhabi Group, a loose family association of investments that would go on to pour billions of dollars in many parts of the world, the biggest chunk of which was in Pakistan.

The Abu Dhabi Group would eventually become one of the largest investors in Pakistan. And even as they invested in Africa and

24

Central Asia, Pakistan became Sheikh Nahyan’s playground, and the group’s core asset. It currently owns a controlling stake in Bank Alfalah (Pakistan’s seventh largest bank), the telecom company Wateen (or whatever is left of it), and minority stakes in Jazz (formerly Mobilink, Pakistan’s largest mobile operator), and in United Bank Ltd (Pakistan’s third largest bank), and major real estate projects worth at least several hundred million dollars, if not billions of dollars.

Over the years, the Sheikh would appoint two Pakistanis as chief executives for his group.

His first right hand man was Bashir Tahir, and by extension Bashir’s brother Pervez Shahid.

For years ‘the brothers’ were flying high, until 2011, when they were forced to exit the group shrouded in mystery and shame. For the next five years, the group would be run by a four-person team of mostly Europeans with some Pakistani input. The Sheikh was also unable to retain their services, firing the entire board in one fell swoop in 2016.

The next Pakistani to be elevated to the top job by the Sheikh was Adeel Bajwa, a lawyer turned investment banker with a similar roller-coaster trajectory. Bajwa assumed the role of CEO after the 2016 board debacle, though his tenure was not to last long. In March 2019, he too was given an honourable discharge, and ‘resigned’ as the group’s main man. He was succeeded by Dominique Liana Russo, the Columbia and MIT-educated former management consultant, and the first woman to hold the job.

The two former favourites of the Sheikh’s have currently pulled up their drawbridges and are hiding behind their castle walls. It is clear enough that they have a lot to say, both about the group and about the Sheikh himself. But both are reluctant to open up.

In interviews with Profit, Bashir Tahir and persons close to Adeel Bajwa maintained a tact decorum, even when discussing nasty bits like police reports, corruption, and threats. But behind the facade of politeness, there exists an epic triangle of almost Victorian proportions.

The Sheikh is the hasty, Byronic hero who believes any and every rumour that the wind carries in – in a word, unreliable. Bashir Tahir and Adeel Bajwa are his spurned confidantes.

Embroiled equally in their admiration for the Sheikh, their bitterness at how it ended, and their hatred for each other. And being torn apart in the process is the family heirloom that is the Abu Dhabi Group in Pakistan.

As the Abu Dhabi Group looks to possibly depart from the murky, drama-filled landscape of Pakistan, it could take with it billions of dollars worth of investments from the country.

The Punjab government has already tried to mend fences, but has the Sheikh had enough of Pakistan? And if he has, how much of the group’s failure to consolidate is he himself

responsible for?

As with anything worth explaining, let us start at the very beginning, and an ominous beginning at that, the Bank of Credit and Commerce International.

Rising from the ashes

I

f you ever want to see a disaster, you need not look farther than Agha Hasan Abedi and the Bank of Credit and Commerce International (BCCI). The bank’s misdemeanors and Abedi’s life are well recorded and extensively profiled, including by this magazine.

But from the disaster of corruption that was the BCCI, there also came out men and women that had given the bank much of their lives and had risen high in its ranks.

One of these men was Bashir Tahir, who had been in the world of banking since the early 1970s, leaving somewhere around 1991, when things at BCCI were really going down the drain. In that year, he was arrested as one of the five high-profile figures from the bank and let go sometime in 1994 after a three-year prison stint.

But it was back in the 1980s, when he was still a part of BCCI, that Tahir first interacted with the UAE royal family, to a section of which he would become a central figure in the decades to come.

His first interaction with the Nahyan family was with Mubarak bin Mohammed al-Nahyan, who was then interior minister of the UAE, and the father of our story's central figure. So, when Mubarak bin Mohammed Al Nahyan, died soon after these initial interactions in a road accident in London, his son came back to the UAE to manage his father’s affairs. And that is where the relationship between Bashir Tahir and the Sheikh began.

At this time, the BCCI was operating in the UAE with two different kinds of branches, both as branches of their bank holding company in Luxembourg, as well as locally incorporated branches. In the UAE, Agha Hasan Abedi decided to set up the Bank of Credit and Commerce Emirates (BCCE), a locally based version of the BCCI. To lead this new venture, he chose Bashir Tahir as his General Manager, a title that belies the importance of the role that he was to play.

BCCI had a 40% stake in this new bank, and the governments of Dubai and Abu Dhabi both had a 10% stake each. The remaining 40% was publicly held. The next decade would see the bank grow under Tahir’s management. It would also, in 1991, change its name to Union National Bank, with Tahir as CEO, to try and distance itself from the unavoidable link with the BCCI, which was nearing its own crash.

But back when the bank was first formed in 1983, there had been one fateful decision Abedi had made, and Tahir had unwittingly helped him make. With the forming of the new

“I brought these huge investments to Pakistan. But in my entire time at the group, my biggest enemies were Pakistanis. And I’m not talking about regular people, there are big important people with important jobs saying these things. Jobs that give their words weight, and which automatically means I am being sold short or misrepresented” Bashir Tahir, former CEO of Abu Dhabi Group

bank, there had come the issue of appointing a Chairman. The name that came to Bashir Tahir’s mind was of the young, Oxford-educated, suave, sharp-minded Sheikh Nahyan. Having interacted with the son of his former acquaintance, Tahir pitched his name to Agha Hasan Abedi who appointed him Chairman of the BCCE. This was the beginning of a close professional relationship between Bashir Tahir and the Sheikh.

The beginnings

B

y the time BCCE, which had become the UNB by then, collapsed under the weight of the crimes of the BCCI and Abedi, Tahir had already left the bank, been jailed, freed and was in the short wilderness period of his career. It was during this that Sheikh Al Nahyan, seemingly unworried over his time in the slammer, called him up to be the Abu Dhabi Group’s CEO. “This was actually just called the Dhabi Group. We called it ‘Abu Dhabi Group’ to give it more credibility since people recognised the area,” Tahir said, alluding to the fact that many Pakistanis often mistake the Abu Dhabi Group as being a UAE government-owned entity (it is not).

Profit interviewed Tahir in his drawing room, decorated lavishly to the point of being gaudy. Bashir Tahir is by no means a man with a loud personality or a striking presence. He is of average height and build and a low voice lowered even more by age.

But in the middle of the gaudy décor, he exudes a sort of simplicity in his creamish kurta shalwar – a man who appreciates afternoon naps and warm cups of milk. He does not seem, at least in physical appearance, anywhere near what you would imagine a person in the cutthroat upper echelons of the world of business to be. Whether retirement has done this to him or age, he appears a tame figure.

The Abu Dhabi Group was a loose family association of investments. It was conservative in its investment outlook, and not really very well-known around the world. That would all

change once the Sheikh appointed his Pakistani associate as the group’s CEO. From a family office engaged primarily in passive investments, Tahir would transform the al-Nahyan family’s investments into a vehicle that acted as a lead investor for a consortium of investors that came to be known as the Abu Dhabi Group. The key focus areas became banking, telecommunications, and real estate. The group’s plan of action was to invest in places where other investors would fear to tread.

“The Group understood the risks of investing in emerging and frontier markets, including corrupt government officials and corruption in general. However, we were able to manage the risks inherent with this investment approach by approaching each target market as a portfolio investor,” he explains.

Unlike what many people may think, Bashir Tahir was not the Abu Dhabi Group’s man in Pakistan. He was the man for the entire Abu Dhabi Group. The Sheikh had him flying all over the world, including Africa and other underdeveloped regions to invest the group’s money.

“But as a Pakistani, my heart naturally gravitated towards my own country. In addition to this, the Sheikh himself was very deeply interested in the possibilities Pakistan had to offer, a place his grandfather had once called his second home.”

According to his own estimate, Bashir Tahir was directly responsible for bringing in a whopping $3 billion in investments to Pakistan alone. By comparison, the investments he was responsible for in the rest of the world totaled only $500 million.

Bashir Tahir himself was headquartered in the UAE, close to the Sheikh, at his beck and call whenever he needed financial advice on investment matters.

At its peak, the Abu Dhabi Group’s investments globally included Bank Alfalah, United Bank Ltd (sold soon after being bought), Warid Telecom (Pakistan, Bangladesh, Republic of Congo, Uganda & Georgia), Wateen Tele-

com, KOR Standard Bank (Georgia), Raseen Technologies, Al Razi Healthcare, and other investments in the industrial, pharmaceutical and consumer staples sectors.

But where it all started was Bank Alfalah.

And its buying in difficult conditions and eventual rise as one of the top five banks in Pakistan was orchestrated by Bashir Tahir, with help from his younger brother Pervez Shahid.

The expansionary period

B

ank Alfalah started off with the remnants of BCCI in Pakistan. After the scandal that surrounded Abedi, the Pakistan government had bought out the three branches of the bank that had existed in Pakistan. In 1997, on the advice of Bashir Tahir, Sheikh Nahyan bought those three branches and made his first inroads into Pakistan.

And while he sat next to the Sheikh in the UAE, Pervez Shahid worked as the strategic manager for Bank Alfalah, playing a crucial role in the bank growing from its original three branches to having coverage all over the country, and eventually a small presence in Afghanistan and Bangladesh as well. By 2010, the last full year of Tahir’s tenure at the group, the overall count became 378 branches in Pakistan, two in Afghanistan and five in Bangladesh.

Soon after Bank Alfalah was established in 1997 the Sheikh might have thought twice about his recent investment given the military coup in October 1999 that brought General Musharraf to power. The instability in the country, however, did not deter Bashir Tahir, who doubled down and had perhaps his best days during the Musharraf era.

Bank Alfalah continued to grow, and when it opened its flagship branch in the historic Shahdin Manzil in front of the Punjab Assembly, in attendance at the inauguration was none other than President Pervez Musharraf.

He also formed a close association with the Pakistan Muslim League Quaid (PML-Q)

CONGLOMERATES

administration in Punjab, and with the Chief Minister Chaudhry Pervez Elahi. Pictures of Bashir Tahir receiving the Sitara-e-Imtiaz from President Musharraf or sharing a laugh with Elahi line the walls and many nooks and crannies in his house.

In 2002, the Abu Dhabi Group had been part of the consortium that had been involved in buying United Bank Ltd from the government of Pakistan after its privatisation. The Sheikh would serve as the Chairman of UBL for the next 11 years, as the brothers continued to try and get an iron grip on Pakistan’s banking.

At the same time, the group looked to expand into other territories and sectors within Pakistan. Perhaps the most significant of these moves were Warid and Wateen – the former of which is currently facing the doldrums, and the latter has been merged with Jazz. But it was here that our other character makes his first appearance, and stakes his claim for the Sheikh’s trust.

Enter Adeel Bajwa

I

n 2004, Adeel Bajwa was on a flight back to Pakistan. He was a disappointed man, having failed to finish the job he had been assigned. His employer, the late Salman Taseer, had sent him as legal counsel to take part in the auction of 2G licences for Pakistan.

Salman Taseer’s group did not get the license, but on the flight back with him were Bashir Tahir and Pervez Shahid, already entrenched titans in the imagination of Pakistani business aspirants.

So when Bashir Tahir offered him a job with the Abu Dhabi Group, he took it without thinking twice. All of Salman Taseer’s persuasion and displeasure were not enough to stop him, and soon enough he was taking the daily elevator to the 9th floor of the EFU buildings in Lahore where he worked as legal counsel to Warid and Wateen.

Telecom is a complicated business from a regulatory perspective, and good lawyers are important for the business. Licenses are a messy, legal affair and there are few that can really go through the mind-numbing process of understanding the nitty gritty details of it all. Adeel Bajwa became that man for the Abu Dhabi Group.

So much so that when the group’s telecom interests in Bangladesh were under threat in 2005-06 due to a snag in getting licences for 900-level spectrum frequencies, he was the man they sent overseas to deal with it. Tagging along with him was Pervez Shahid, and the two spent six months in Dhaka together and were ultimately successful in resolving the problem.

The next few years were a period of growth for the Abu Dhabi Group, the brothers, and for Adeel Bajwa. Bajwa was still not quite at the top, so to speak, but he was making his ascent. After his success in Bangladesh, he was sent all over Africa to deal with the group’s desire to acquire telecom licenses in the continent, becoming the go-to person for the Sheikh on all matters telecom.

In Uganda and Congo, there were attempts on his life when the Sheikh insists on disrupting the telecom markets in countries where the industry was consolidated in the hands of powerful local individuals and companies. He also went to Georgia, where he was responsible for the acquisition of the Kor Standard Bank (now Terabank).

In an interview, persons close to Adeel Bajwa tell of his dedication and his single minded work ethic. A commonly quoted example is a night he spent in Georgia to work on a bank acquisition. The story goes that the still wet behind the ears lawyer was excited boarding a plane going to the European sounding ‘Georgia.’

But as it turned out, it was a straight shuttle from the airport to the hotel, working all night on the contract, getting the job done and flying straight back to start another day. But his work shone through, and Bajwa slowly but surely started becoming an important cog in the Dhabi machine.

At some point during all this, Bajwa was moved to Abu Dhabi. He became the General Counsel to the group. His involvement in affairs back in Pakistan was now limited only to the legal side of Warid and Wateen, both of which he had taken a lead in.

For a short period, things seemed in order. Bashir Tahir was soaring high, trusted and relied upon by the Sheikh. In 2006, he had once again used his influence with the Sheikh and his good terms with the Punjab government and Chief Minister Pervez Elahi to kickstart the remarkable real estate investment project

known as Taavun.

The Abu Dhabi Group was also building a huge building on Ferozpur Road in Lahore worth billions of rupees. Adeel Bajwa had also found his little niche within the group. But things were about to change drastically, as the brothers finally began their plummet from the top.

The chinks in their armour were starting to become apparent. At the end of the Musharraf Administration in 2008, Pakistan seemed a less desirable business destination for foreign investors like Sheikh Nahyan. The political rivalry between the Sharifs – now back in office in Punjab – and the Elahis, now on the outside, began to affect the group.

While the Shehbaz Sharif administration in Punjab also wanted the Abu Dhabi Group’s investment dollars, their desire to punish all those close to the Elahi administration was enough for them to halt government approvals for some of the Abu Dhabi Group’s projects.

Other pet projects for the group included Al Razi Healthcare, the diagnostic facility that the Dhabi group was trying to bring in competition against giants such as Chughtai.

But after building a single diagnostic center somewhere in Gulberg, the Sheikh did not want to put in more money even as other players were investing, growing and bullying market space away from the group. A sugar mill in Sindh that the Sheikh invested in privately apart from the group saw the same end, a dearth of investment.

At the same time, Wateen was also beginning to falter. Once the hot internet provider on the market, it now faced the same existential problem: the Sheikh did not want to put in any money after having set it up. His expectation was a quick pay day, not the many labours that building industry takes.

According to whispers at the time, Wateen had become a shining example of bad management under the brothers. What they do not take into account is that Wateen by this point had become an uphill battle. Telecom is a rapidly changing business, new technology can wipe out existing infrastructure overnight.

The key is to keep investing, and wait until the moment is ripe to cash out. This is where the Sheikh failed, simply because he was no longer interested in pouring more money into Wateen and Warid as well. The oversubscribed IPO of

Abu Dhabi Group’s Pakistan portfolio

26

Wateen at Rs 10 per share in 2010 and its subsequent buyback and delisting at Rs 4 per share continues to haunt investors till date.

Despite this, the brothers continued on their aggressive investment spree, unhindered by not having the same sort of government support as before. The result was a catastrophic fall from grace, and in the Sheikh’s eyes.

The crash

U

neasy lies the head ..., as they say.

Particularly uneasy were the heads of the brothers, as Bashir Tahir and Pervez Shahid had come to be known. And uneasy as they were, their heads were about to roll as the Sheikh went on his first royal clean-up spree in the group.

In 2011, Members Board of Directors, Warid Tel and Wateen Telecom, Bashir A Tahir and Pervaiz A Rashid had resigned from both the companies. The Abu Dhabi Group had by then invested $20 billion in the telecom and banking sector. When the news initially broke, Tahir said he had resigned for personal reasons.

But a major reshuffle, especially in Wateen, was on the cards, especially since its CEO Tariq Malik had also resigned, and a man from Abu Dhabi was already being sent down to assess the damage.

The Sheikh and the brothers were at odds. Wateen was bleeding money, and the only solution to stop the gush was putting up more money. The Sheikh seemed disinterested, but this did not fit well with the expansionary methods of the brothers, and Wateen was bleeding a million dollars a month just on its WiMax business. At the same time, before and after Tariq Malilk, teams at Wateen came and went with the wind, not letting the company take root at all.

In the middle of this internet disaster for the ages, which has led Wateen to a point where they are barely able to pay for their employees, and not at all able to even pay their utility bills, there were also personal allegations against the brothers. The allegations against Tahir and Pervez have always been hazy.

But at some point there was the feeling that somewhere there were financial discrepancies.

Whispers flew that the brothers had rented and leased their own properties to Bank Alfalah at exorbitant rates. There was at some point also a very detailed forensic accounting exercise led by auditing giant KPMG. According to Pervez, the audit cleared both brothers of any wrongdoing. But because their vindication was not made public and the accusations were the talk of the industry, they were shunned and made pariahs in the world that they once ruled.

“We were cleared. One hundred percent.

But because there is now this impression that

there was some corruption, we have been ostracised completely,” says Pervez Shahid.

When asked about the downfall, Tahir was not forthcoming. He waxes and wanes philosophical about the nature of business, but it is also the question at which he begins to reveal some of the bitterness.

“I brought these huge investments to Pakistan. But in my entire time at the group, my biggest enemies were Pakistanis. Not specific Pakistanis, but this nation in general. They are their own worst enemies,” he says.

Much of his dislike for his countrymen is a typical drawing room diatribe. Blame the people themselves when you cannot see systemic and endemic problems plaguing a nation. But it also comes from a place of hurt, because Bashir Tahir does feel wronged, this much is clear, even though he does not say it in so many words.

“Tell me, if you were the Sheikh, and I went up to you as a Pakistani and started cursing you in front of him? What would you make of it? You would think badly of me and wonder why my fellow countryman was saying such things about me.”

“And I’m not talking about regular people, there are big important people with important jobs saying these things. Jobs that give their words weight, and which automatically means I am being sold short or misrepresented,” he added.

Bashir Tahir does name names, but only off the record. Men who are now in exile or wanted or in jail who have held high offices in the land. But he remains resentful towards them. He feels cheated and betrayed, that people he helped went on to blame him in front of the Sheikh and effectively brought his career to an end. The worst part in his view, of course, is that the Sheikh believed them. And that seems to be a common theme, the Sheikh believing whatever he is told and making rash decisions regarding management that do more harm than

good, even as he refuses to inject necessary capital as he did with Wateen.

By the time he was being made to leave the group, Bashir Tahir was in an interesting position. At this point, there were rumours that Bank Alfalah was up for grabs and the group was looking for buyers. The new management coming in feared that there could be a run on the bank. As the recently former, and possibly disgruntled, group CEO, he could have played sides, leaked information, or advised a rival group.

“When the entire overhaul took place, many people wanted me to take part in pressers and call out the Sheikh and Bank. Sheikh Nahyan called me then, and said that Bashir, I hope you won’t say anything about the group.”

To this I replied, your highness I will say things about the group and they will all be good,” he claims to have said on the final phone call. The Sheikh then told him he would want him to be his advisor, to which Tahir responded by saying it would be his honour.

“I still have that advisorship to this day but that’s pretty much it,” he laughs. One might consider it a retainer to keep his mouth shut.

This is where he begins to reveal just a little bit about some of the resentment he may hold towards the Sheikh. When asked, Bashir Tahir claims that Sheikh Nahyan has strong business acumen and comes by his reputation fairly. But the sense we get is that the Sheikh is easily hoodwinked. That he puts too much stock in rumours and what outsiders tell him about his own people. Something that has added to his regular changes in management. It is a widely held opinion, and seems also to be what Adeel Bajwa’s side holds true.

“Mr Bajwa has great regard for the Sheikh, everyone does. He is an impressive man, humble despite his pedigree and sharp as a tack. He knows business, he really does” our source on the Adeel Bajwa side of the fence tells us.

CONGLOMERATES

“But at the end of the day, he is a Sheikh.

As modern a Sheikh as he may be, he is an executive of executives. And the problem with him in particular is that he easily believes everything that people tell him. And when it is high ranking people that are telling him these things, of course he will listen to them,” they say.

“But there is more to it than what they’re telling you,” he explains, for the first time hinting at the animosity between himself and the brothers. “There was a lot that KPMG found out actually, and the Sheikh just decided to let it go because of his relationship with the brothers.”

The claim is an extraordinary one. It essentially means Bashir Tahir could have been looking at another jail term if some fondness for an old friend had not softened the Sheikh’s heart towards him.

There were many other things, of course.

The brothers had overly aggressive tactics, they could not sustain the losses anymore, and they were venturing into banking so much that the telecom side was being ignored. Indeed, Warid and Wateen were already staring down the barrel by this point, with their deal with the Defense Housing Authority (DHA) to provide internet to their residents falling through. But the most important thing Adeel Bajwa indicated is that the Sheikh might have dirt on the brothers, which is perhaps why they have gone down so amicably.

For all intents and purposes, this was the end of the brothers. For Adeel Bajwa, now was the time to shine more than ever and he grabbed the opportunity with both hands until he rose to the very top.

The aftermath of the brothers

I

f this were a thriller or a television show, the exit of the brothers would probably be followed by Adeel Bajwa being rushed in to replace the very men that hired him in the first place. It is a classic trope, but one that took a little longer to come full circle in real life.

The truth is that Adeel Bajwa barely made it out of that first management shuffle alive. It was entirely likely that he would go down with the brothers, having been appointed by them, and as many others did. But to put it simply, he proved to be indispensable. He knew far too much about the telecom side of the business, especially Warid and Wateen.

The group was in a mood to wrap things up with Wateen and Warid, with all the costs it was incurring. Adeel Bajwa was the only one that understood Wateen’s debt and all the complications surrounding its many licenses.

So for now, he stayed on as the group’s General Counsel.

The replacement for the all-powerful

28

“We were cleared [by KPMG’s forensic audit].

One hundred percent.

But because there is now this impression that there was some corruption, we have been ostracised completely” Pervez Shahid, former Pakistan coordinator for Abu Dhabi Group

Bashir Tahir was not a single person, but the safest of all possibilities: a four-person executive board. European through and through, the board began to be known as the ‘gora group’ within Dhabi circles.

The so-called ‘gora group’ is the Sheikh’s first anti-Pakistan reaction. Perhaps miffed by the intrigue and whispers surrounding Pakistani management, he went into this completely different direction, and the board reflected his leanings.

They were planning to wipe everything out. Consultants were hired and plans were made final to withdraw from Pakistan, and Adeel Bajwa was shipped off elsewhere. Indeed, the rumours were so strong that in January 2011, Dawn ran a story headlined “Abu Dhabi Group seeks exit from Pakistan market”.

As the group packed its bags, Adeel Bajwa was jetted off to Africa once again to put out some of the third world fires in that part of the world. This time, it was in an effort to trim down operations, with ‘reduce’ being the new motto for the group.

The Abu Dhabi Group had sought licences for banks in the region under Bashir Tahir. All of those plans were now cancelled. The telecom businesses that had almost got Bajwa killed back in the day were reformed, turned into lean operations, and sold off for profits to companies in Singapore. All in all, Bajwa was able to steer them out of most of the African assets with their money intact. And that is when he went back to Pakistan.

During this period Adeel Bajwa had become the man for mergers and acquisitions. The biggest thorn in the Sheikh’s backside in these days was Wateen, which had become next to unoperational thanks to rising costs, and Warid which was bleeding money by the day. Adeel Bajwa was chosen as the person who would sell off these poorly performing assets.

But it was here that Adeel Bajwa played

his master stroke. It was 2014 and Warid had been the only telecom provider in Pakistan not to secure even a 3G license during the government’s 3G and 4G spectrum auctions. It was once again the same old story, the same old thorn in the Sheikh’s behind. Warid needed to be showered with money, and the Sheikh simply turned his head once again.

Adeel Bajwa then did the kind of managing that the Sheikh approved off, he was wiley, and with his years in the field, Bajwa not only managed to execute a highly favourable sale of Warid, he did so by also securing a 4G licence for next to no cost.

With the shift from 2G to 4G LTE, Warid became a desirable entity again. And when it was learned that it was up for grabs, Jazz swooped in and hands were shaken. In the all-shares transaction, Warid got a 15% share in Jazz, and Sheikh Nahyan got to keep a seat on the board. But in 2016, soon after the merger, Adeel Bajwa got a call to meet the Sheikh immediately.

There are many ways the story is told, but the one detail that is common is the gun room.

In his palace in the UAE, the Sheikh receives guests in the ‘gun room.’ As the name suggests, the room has antique guns displayed all over the walls. An imposing sight, when Adeel Bajwa walked in surrounded by these ancient firearms, he was half expecting to be fire instead. What he got instead was a job offer.

There had not been anything particularly wrong with the board, but it had, according to Bajwa, become too conservative in its approach for the Sheikh’s liking, who had become used to the big swings of Bashir Tahir. So the board went.

He was also happy and impressed with Bajwa’s work, especially the frugal way in which he had managed to make Warid an attractive prospect and sell it at a good price. This in addition to the close working relationship they had developed since the departure of the

brothers, an offer was extended to Adeel Bajwa to become the Abu Dhabi Group’s new CEO to replace Bashir Tahir.

He accepted immediately.

The lawyer becomes a banker

B

ajwa had little time to bask in his new position. There were important matters to deal with, front and center being Bank Alfalah. The Sheikh was looking to get his hands clean from this as well. During the ‘Gora Group’s tenure, the group had already sold most of its shares in UBL, keeping a paltry 5%. The Sheikh also had to step down as the Chairman of UBL, a position he had held for 11 years.

Adeel Bajwa turned this around, insisting he would keep Bank Alfalah under the group’s umbrella. But what happened in the process was Bajwa finding himself a little out of depth, and paving the way to his own downfall.

His immediate strategy was stinginess.

His first move was to announce to the higher management of Bank Alfalah that they were spending too much money, and he was there to put his foot down. The result was a back and forth with Atif Bajwa, unrelated to him and the man who had replaced Pervez Shahid as the group’s man responsible for Bank Alfalah.

A senior banker with a wealth of experience, Atif felt slighted at this lawyer from Abu Dhabi coming in and trying to tell him how to run a bank. The Sheikh, however, favoured this kind of behaviour, especially since much like Adeel Bajwa, he was more interested in immediate profits than in growth. Profit has been told on good authority that when Atif Bajwa would go to give presentations to the Sheikh in the UAE, Adeel would sit in and nit pick on his points. Once again, his banker’s pride was slighted.

As CEO of Bank Alfalah, Atif Bajwa felt Adeel was being heavy-handed and not letting him run the bank to his full capabilities. As the tensions simmered and came to a boil between the two Bajwas, Atif made an ultimatum to the Sheikh. The Sheikh sided with his (then) trusty lawyer, leaving the field open for Adeel to bring in his own man to run the bank.

The headhunt for a new CEO for Bank Alfalah led Adeel Bajwa to Nouman Ansari, who he poached from Faysal Bank and installed as Alfalah’s new CEO. Ansari’s appointment also pointed towards another ambition of Bajwa’s, that quite contrary to the Sheikh’s initial desires to dump Alfalah, he wanted to expand it. And part of his expansion plan was to acquire Faysal Bank.

Ansari in turn proved even more frugal than Bajwa, embarking on the cost cutting

Chief Minister Usman Buzdar met with Dominique Russo in April 2019 to discuss the future of the Abu Dhabi group in Pakistan. measures with a certain zeal that justified his appointment, at least to Adeel Bajwa’s mind. At the same time, he wanted to make sure that the Abu Dhabi Group’s many real estate projects in Punjab, including Taavun and the plaza on Lahore’s Ferozpur Road initiated by the brothers be completed.

His ambition, however, continued to be beaten into submission by Bank Alfalah, which continued to slip. Where it had once had ambitions to enter the top four of Pakistani banks, it also lost its formerly constant spot at number 5, slipping down to 7. On March 20, 2019, Adeel Bajwa announced he was resigning from the Abu Dhabi Group to pursue an ‘exciting new assignment’.

The exit was as shrouded in mystery as that of the brothers. The group has not alleged any wrongdoing on Bajwa’s part, but it once again seems they are holding back. In turn, so is Bajwa, not really saying anything explicit against the Sheikh or the group.

What we do know, however, is that the exit did not have anything to do with Bank Alfalah, despite the slipping rankings. Up until now, Bajwa had been claiming he left of his own volition. Now, he says he does not know why he has been removed. But at the core of it was alleged corruption.

At some point, Bajwa wished to rid the group’s hands of the very thing he was hired for: Wateen. To this end, he started making moves to sell Wateen to an American firm. Once again, this is where details and reality begin to blur.

But it has been reported that Bajwa made all the arrangements, and went off to Abu Dhabi to get approval from the Sheikh. The Sheikh, once again hounded by rumours and whispers, apparently grew suspicious and started asking around after the firm. This was enough to convince the Sheikh that the firm was fake, and would somehow lead back to Adeel Bajwa, who stood to make a killing of Wateen.

That, at least, is the version that the Sheikh believes for all intents and purposes. The details are a little different. The company that

Wateen was being sold to, and Wateen really needs to be sold, was called Elko broadband.

They are currently buying WorldCall since the deal with Wateen fell through, which would indicate they were a legitimate buyer.

The Sheikh’s paranoia has lost Wateen a buyer, and who knows when another one will show up, and whether Wateen will even manage to stay afloat in the meantime. What is worse is that the group has not even made any allegations against Adeel Bajwa public, probably to save face themselves. Profit has learned on good authority that the group had to pay off a certain publication to stop printing stories detailing the allegations against Wateen and Adeel Bajwa, to try and stop the information from leaking into the public.

At the same time, the assignment Bajwa claimed to be leaving for has still not arrived, unless he was talking about the multiple criminal and civil cases he is embroiled in with the brothers over the scraps of land that the Sheikh left to his Pakistani CEOs as bonuses.

Since his ‘resignation,’ Dominique Liana Russo has been running the show. She further discovered that the person on the front of the firm Wateen was being sold to was an ex-convict. In the meantime, Elko broadband is deliberating suing her, since she was the one that finalised the cancellation of the Wateen sale after replacing Adeel Bajwa. But how long she will enjoy the Sheikh’s trust is yet to be seen. But precedent does not seem to favour her having a clean break. The Sheikh seems to be of the bulldozing disposition.

What now?

D

ominique Liana Russo met with Punjab Chief Minister Usman Buzdar a few months ago in late April to discuss the Abu Dhabi Group’s projects in the Punjab. The CM’s message was clear: a lot of investment opportunities are available in Punjab, he said, and ‘naya’ Pakistan is open to investors.

He said all the right things. That the gov-

CONGLOMERATES

ernment would provide every possible facility to the investors, that the Abu Dhabi Group already has extensive investments in Pakistan, that a comprehensive policy has been adopted to promote public-private partnership etc.

It is a different time for sure. A different CEO and a different Chief Minister. And for some reason, we have a feeling that, despite his towering stature, intellect, and natural charm, Chief Minister Buzdar is not going to form a close relationship with Ms Russo as Bashir Tahir did with Pervez Elahi.

A whole lot of things are different. What remains the same is Pakistan’s interest in keeping the Abu Dhabi Group and its money in the country. What might be another difference, however, is the Abu Dhabi Group’s interest in staying around in the country. And the Sheikh might just be in even more of a hurry to leave because of the actions of his two former CEOs, both of whom are involved in a mudslinging match for the ages. But what they are fighting over is a creation of none other than the Sheikh.

In 2019, when Adeel Bajwa left the group, he came back to Pakistan with much to show for. But one of the biggest assets he brought with him was the ownership of a large commercial plot near main MM Alam Road in Lahore – prime real estate. The plot was given to him by the Sheikh in lieu of his annual bonus. And that’s where the brothers come back into the story.

As part of his time at the Abu Dhabi Group, Bashir Tahir had invested some of his own money in some of the group’s investments.

One was a tower site maintenance company called Wincom (Pvt.) Ltd that would provide services to Wateen. About 80% of it was owned

by Sheikh Nahyan, and 10% each by the two brothers. Setting up their own company was Pervez Shahid’s idea since Huawei and other such providers were charging very high rates.

It did quite well over the years and had assets of over Rs2.5 billion by 2011-12, when the separation took place. By then it was providing

services mainly to Warid and Wateen, and to some other external customers as well. Pervez Shahid says it was set up with an equity capital of Rs50,000, which he paid. Since 2011 however, the brothers have not seen any of the money from their shares in the company.

Part of those Rs2.5 billion in assets was the plot that the Sheikh now gave to Adeel Bajwa. True enough, Sheikh Nahyan owned 80% of the company and could do with it as he liked, but in the process, the brothers’ minority share was turned to dust.

When Adeel Bajwa returned to Pakistan, the brothers contacted him to settle the matter.

He stood his ground; the property is mine he said. The brothers filed a civil suit, as Bajwa had expected. What he did not expect was the criminal case against him that would follow.

The charge? Land grabbing.

The brothers are not named in the criminal FIR. But Adeel Bajwa’s friends and benefactors insist that they are naturally the ones behind it.

The interesting part is the response of the Sheikh: complete silence. Apparently, Adeel Bajwa waves the documents signed by the Sheikh

A whole lot of things are different. What remains the same is Pakistan’s interest in keeping the Abu Dhabi Group and its money in the country. What might be another difference, however, is the Abu Dhabi Group’s interest in staying around in the country. And the Sheikh might just be in even more of a hurry to leave because of the actions of his two former CEOs, both of whom are involved in a mudslinging match for the ages.

But what they are fighting over is a creation of none other than the Sheikh.

30

on his own stationary to any and everyone he meets. Documents that prove his ownership of the land, but the Sheikh has become a party to the civil suit instead. The question is: if the Sheikh did not give Adeel Bajwa the property, where do the documents come from?

One of the possibilities is that the Sheikh did indeed give Adeel Bajwa this property, but after his alleged attempt to dupe him out of Wateen, he does not want him to keep it. But if that was the case, does the Sheikh just plan on strong arming Bajwa without the aid of the law? Even then, if he does do that, how does he plan on compensating the brothers, who were shareholders in the property?

All of Profit’s attempts to reach out to the Sheikh, to Ms Russo and to the Group went unanswered. No answers were received on the issue of the squabble between the brothers and Adeel Bajwa. Nor did we get a response on whether the group was planning on leaving Pakistan, or whether Bank Alfalah was up for sale again, or why the Sheikh had such a problem maintaining management regimes for the group. The closest we got to a response were the friendly and not so friendly requests to kill this story.

The group’s silence is ominous. For now, they have too much in Pakistan to straight up pack their bags and leave. The only thing truly worth keeping is Bank Alfalah, and even that is slipping. But this would not be the first time that the Sheikh has wanted to exit Pakistan.

The last time he did, he also removed his Pakistani executive and had a group of Europeans try and make the plan work. It seems a similar story this time. And with Pakistan at a troubled juncture, it might just happen this time, leaving behind nothing but two discarded grand viziers fighting over the carcass of the empire. Over one final gift from the magnanimous, the mysterious, the enigmatic Sheikh.

CONGLOMERATES

After 2010, Tadpole films and an iconic team consisting of Faisal Qureshi and Adeel Hashmi made adverts for Ufone that become cultural reference points. But did they make Ufone any money?

I

By Syeda Masooma

t isn’t easy being funny. For sure, the joke you told yesterday during dinner might have killed, but with enough context and concentration of crowds, anyone can do it. What we are talking about is the art of telling a joke. It takes time, practice, patience and a lot of thought.

Stand-up comics that so seamlessly deliver entire sets that have audiences in stitches take years to perfect their bits - years of jokes falling flat, working and reworking single lines for hours on end, hostile crowds and, worst of all, silence.

32

“Despite all these ads going viral one after the other, Ufone remained one of the worst performers in generating sales through TVCs. So I had to shut them down because there is no point in continuing even viral marketing campaign that is not yielding any results” Adnan Anjum, head of marketing at Ufone Writing a joke might be even harder.

Without the added benefit of changing voices, impressions and tricks of delivery, you’re punching solely on the weight of your joke. The Dependent, this magazine’s sister publication, might seem like good fun, but all of the silliness and absurdity is carefully thought out and executed at great pains each week.

Our point is that humour is hard. Think then how hard it would be to produce short television skits that capture the imagination of an entire nation. Bits of humour that reach that all high strata of comedic achievement of becoming ‘a thing.’

Becoming a ‘thing’ is exactly what the much adored post 2010 advertisements aired by Ufone did. Everyone has their own memories

with those ads. Starring Jawad Bashir, Adeel Hashmi, Faisal Qureshi, Mikaal Zulfiqar and a rotating array of leading ladies, Ufone did everything. They put a donkey on a bed frame to highlight miscommunication, jumped from an airplane to accentuate ‘saaf awaz’, and took jabs at competitors like Telenor with taglines including the likes of “Sachi Yaari Jaib pe Bhaari.”

In the process, Ufone adverts became a cultural reference point, an understood axiom in Pakistani pop-culture. When a new one came out, everyone watched with a little excitement. It was discussed, imitated and went viral every time.

As we’ve already gone on at length to explain, humour is hard. It’s even harder to make something money and deliver a commercial message along with it. Ufone managed to do both. But in its very successful efforts to become the only digital comedy troupe in Pakistan, almost AIB-esque now that one thinks about it, did the team behind these ads skimp out on the marketing bit?

Needless to say, not only were the ads funny, they were also a cultural phenomenon.

Even today, in marketing circles and conferences, Ufone’s “funny ads” rarely go unmentioned. But how effective were they as marketing strategies, and did they reap the desired returns that executives are looking for? Or did creativity take over the intended message at some point in time? And if they were indeed so good, where in the world did they go? Profit takes a look.

Ufone’s marketing, A history

I

t was in 2010 that Ufone first made the fateful decision to jump in head first with their idea for humorous marketing.

Interestingly enough, this wasn’t even a desperate move on their part. Ufone’s previous, more traditional marketing marketing efforts had been doing quite well. This was simple the kind of bold move that had ticked in everyone’s mind, as it would soon enough tick in the minds of the rest of the country.

And it was well worth the risk.

You need to understand that 2010 was an important junction in Pakistan’s telecom story. Mobile phones and sims had become common by this point, but the generation that formed the clientele of phones and telecom companies were still the ancient dinosaurs that didn’t quite get the magic that their little devices could perform.

2010 was the time when teenagers that had spent their entire childhood fiddling with their parent’s phones were finally about to get their own. And when it came to choosing a network, there was never going to be any choice other than Ufone. Their marketing, no matter everything else, had at the very least worked to make Ufone the ‘coolest’ of the networks. Jazz was for the grownups to have their boring calls and messages on. Ufone was what connected with this new market.

In the following year, Ufone landed the Pakistan Advertisers Society (PAS) award for its marketing campaigns. By the time the PAS awards of 2015 rolled around, all three nominated choices from the telecommunication industry were from a total of eighteen entries (5 Mobilink entries, 7 Telenor entries, 1 Zong entry, and 5 Ufone entries). The advertisements continued for a few years afterwards but perhaps by now redundancy had started to creep in.

Any successful marketing campaign has three obvious consequences – the target customers receive the message of the campaign well and clear, they remember it for a long time, and the conveyed message translates into realized sales.

While Ufone’s humorous TV ads garnered spectacular success at making their place in the minds of the viewers, they slowly lost out on their ability to send the intended message, and seriously fell short of generating any actual sales. At least, that is what executives at Ufone were feeling.

TELECOMMUNICATIONS

“Despite all these ads going viral one after the other, Ufone remained one of the worst performers in generating sales through TVCs. So I had to shut them down because there is no point in continuing even viral marketing campaign that is not yielding any results” Ufone Head of Marketing Adnan Anjum tells Profit.

In their response to these accusations, the masterminds behind the the Ufone ads were naturally indignant. “Of all the funny things we have done with Ufone ads, this response from their marketing team is the funniest” said Adeel Hashmi.

Ahsan Rahim, the man behind Tadpole films - the company that made these ads - did not mince words either in his response to Ufone’s claim that sales suffered for the sake of creativity.

“This is one of the worst arguments to make. If you say that the message was lost, tell me how well do you remember the packages and this many minutes in this many rupees by other telcos that did not have this much creativity in their ads” he tells Profit.

To Ahsan, advertisements are supposed to cement a brand in the minds of the viewers and make them familiar to that brand, and the advertisements by Tadpole films did just that.

“How do you know about any of the telecom brands? It is through advertisements.

People associated the name of Ufone with humor and pleasant memories, where there was nothing vulgar, violent, or indecent and that is what an advertisement is supposed to do.”

“Even today people cannot recall any other telco brand with the same fondness as Ufone. The marketing team of Ufone, perhaps when they don’t have any other explanation for their performance, use this argument that the marketing creativity overwhelmed the message” he says.

Both sides present points to ponder. And both sides are best represented in an advert from back in late 2015. It was perhaps the greatest moment Ufone has had in its storied advertising efforts, and quite uncharacteristically, it came in print rather than in a TVC. This was when dedicated newspaper readers woke up to find Faisal Qureshi posing seductively on the front page anchors of all major national newspapers - in a hilarious re-

“Of all the funny things we have done with Ufone ads, this response from their marketing team is the funniest” Adeel Hashmi, actor

sponse to the infamous pose Nargis Fakhri had struck for Mobilink. While a bright light and a hint of a smile will appear on the reader’s face remembering this little bit of hilarity, we ask you now, do you remember what Ufone was advertising in that ad?

For the reader’s benefit, it was a cheap smartphone that the company would let you take off their hands for a mere Rs 5,999. The other side, of course, is that while you may not remember the product, you do remember it was a clear win for Ufone - and that the company masterfully took on a topic that had actually been causing more than its fair bit of misogynistic outrage.

And to echo Ahsan Rahim’s talking point, in the long run, does it really matter what became of the phone? What people remember is Ufone as an innovative company with strokes of genius up its sleeve.

Why so serious?

C

onsequently, for better or for worse, Ufone started moving towards a more theme oriented approach – and one of the big successes out of this new direction, in terms of financial success,

One is reminded at the same time that when Tadpole was doing for Ufone what it did, perhaps Ufone never had something quite as brilliant as the Super Card. If the Adeel Hashmi-Faisal Qureshi-Mikaal Zulfiqar team had been allowed to have a go at it, the possibilities could have been endless 34

came from their Super Card campaign.

It is debatable whether the creativity of the previous advertisements overshadowed the products being advertised or is it just the product that was strong enough to gather actual success on the market. However, from the standpoint of someone who is designing a marketing campaign, the new sophisticated and sober approach seems to be more effective than cheeky and entertaining content.

“Well this product was also brought by the same team that had us engaged to do their marketing” Ahsan explains, accepting the clear win that is the product.

“The current team did not bring this, even though they might not tell you that. The team who put together such a strong product were brave and experimented, not just with a new direction for their advertising but also in terms of the products they offered, and it paid off very well.”

Again, one wonders at how smart the Super Card is as an offer. It promises a cheap monthly billing, one that is manageable for both the company and the customer. One is reminded at the same time that when Tadpole was doing for Ufone what it did, perhaps Ufone never had something quite as brilliant as the Super Card. If the Adeel Hashmi-Faisal Qureshi-Mikaal Zulfiqar team had been allowed to have a go at it, the possibilities could have been endless.

The question again becomes an existential one - what is the goal of advertising? One goal can be solely to improve sales in the short run. The other is to build an identity - brand equity as it is called.

If the goal is the latter for Ufone, then Tadpole Films did the job and did it well. But if the goal was sales, well, even then it seems that Tadpole was delivering.

While Ahsan and Adeel were obviously going to defend their work, other marketing experts also seem more inclined towards the opinion that the job was done well. Shamail Butt, Junior Associate II at Starcom media agency said “For me at least the recall value of those ads with Adeel Hashmi and Faisal Qureshi has been much more than any other telco. The only exception perhaps that I can recall if I try to think is dancing and singing from Telenor but that too I remember the overall stuff, not the details in Ufone advertisements.”

He said that the message perhaps might have been a little deviated, but that was maybe because people at least watched the entire ad.

“Those advertisements were turned into memes. They became a part of social media conversations and pop culture even though meme culture was not so preveland back then.”

“These days I do remember seeing something about the Super Card going on on TV, but as I said I have not paid attention to the entire ad or the message per se. So I would say humor helped because people saw the entire ad at least.”

The human factor

T

here is another factor to consider in all of this - the role played by human emotions. It is not just Ufone that realized the power of “Befikri purey maheeney ki” [no worries all through the month] would be effective. Many brands have since capitalized on similar themes and emotions.

Sensodyne toothpaste has taken ‘sensitivity’ as more than just the medical condition of teeth to sensitivity of relationships. Tapal has made the mother and son connection its base for the advertisement highlighting the strength of tea in strengthening relations. Humor, however, has proven to be trickier to handle, or perhaps ‘manipulate’ in advertisements.

We often see advertisements with an undertone of something funny, which more often than not even fails to bring a smile on the viewers’ face, unlike Ufone’s ads that usually always landed well.

While we are at the subject of emotions, it might be worthwhile to mention that some of these humorous ads were also thought of as offensive by viewers. This one impression might not be as widespread as the fandom that these TVCs managed to gain, but a scroll through the comments on these ads posted on social media will prove that there is no dearth of people who got offended from the content in these ads too.

Another interesting point to note here might be that while Ufone chose to move on from the marketing company that established their identity to charter more serious avenues, Ahsan Rahim, Adeel Hashmi and Faisal Qureshi - the minds and muscles behind the long and memorable advertisement campaign, are still loyal to Ufone as they have not yet decided to scratch ‘033’ as their mobile phone codes.

Meanwhile, there is no denying the success of the Super Card’s success. The product itself also had the strength to bring more customers than perhaps discounts or a promise of clear voice as was promised by the earlier advertisements. Even the harshest of critics of Ufone’s services – especially since it became the only cellular service provider to not provide 4G – are convinced of the excellence of a product like Super Card.

Adnan Anjum agrees. He said that usually

Needless to say, not only were the ads funny, they were also a cultural phenomenon. Even today, in marketing circles and conferences, Ufone’s “funny ads” rarely go unmentioned. But how effective were they as marketing strategies, and did they reap the desired returns that executives are looking for?

mobile phone ads, even those that describe different packages and the digits to be dialed to get those packages, are very complicated. For a prepaid customer, it is much more convenient to understand ‘1,200 on-net minutes and 180 off-net minutes for a month’, than it is to understand how many free minutes for how many rupees for how many days.

Super Card campaigns have also landed Ufone the Silver Effie Award for “Sustained Success” in 2019. This category awards marketing campaigns that have proven to be successful for three or more years, and Super Card have done that inadvertently. Just as the funny ads gave Ufone a reputation of being humorous, Super Card has slowly transformed that reputation into a product of ease and convenience. The marketing department of Ufone has made sure to express just that through their advertisements as well.

The market success of Super Card can also be witnessed from its replication that is coming from Ufone’s competitors. Telenor’s ‘EasyCard’ is no different. It offers a monthly package with set on-net and off-net minutes and messages, and have also closely followed on their marketing tagline as well – “Easy card se easy ho jao” [be at ease with this easy card].

The Super Card is one way of marketing - it is not exactly advertising, but a cleverly packaged offer. It is quite brilliant in a way, and attractive to customers. What tadpole did for Ufone was another kind of marketing. Both have their place in the world, both have their ups and downs. But one can’t help but imagine what could have been, if the old Ufone team was allowed to take a crack at making a TVC with a product as strong as the Super Card to play around with. n

TELECOMMUNICATIONS

OPINION

Suleman Ahmed

B

enjamin Franklin famously said that “[i]n this world nothing can be said to be certain, except death and taxes.” His words are as true for Pakistan today as they were for 18th century Antics.

Much has been said about Pakistan and taxes. But the popular image of an entire country made up of tax thieves and corrupt elements is far from the truth.

Given the sheer quantity of taxes in Pakistan, including without limitation, the FEDs; provincial and federal sales taxes; withholding taxes; income tax; tokens; property taxes etc, and the indiscriminate manner in which the majority of them are levied by virtue of being indirect taxes, they are impossible to avoid.

And to add to businesses’ consternation, the federal and provincial revenue boards have failed to make refunds of overpaid taxes for years. As things stand, foreign investors’ tax refund claims amount to Rs65bn, with Pakistan Telecommunication Co’ being owed Rs9.9bn; Engro Fertilisers Rs6.5bn; Standard Chartered Bank Rs5.2bn; Tetra Pak Rs4.9bn; Engro Foods (now FrieslandCampina Pakistan) Rs4.7b; Nestle Rs4.6bn; Hub Power Co’ Rs2.3bn; and Archroma Pakistan being owed Rs2.2bn.

Similarly, the Government purportedly owes the fertiliser industry Rs24bn in tax refunds and Rs20bn in subsidies, and textile exporters and mills in excess of Rs200bn in tax refunds; the fact these refunds did not accumulate over a short period is axiomatic.

In the textile sector as well, the government’s acquisitions to the IMF have meant that this and other formerly ‘zero rated’ export sectors are now subject to the sales tax, which in some cases is as high as 17%.

With a base interest rate of 13.25%, businesses with low profit margins will undoubtedly face an unprecedented liquidity crisis.

And even if these businesses are somehow able to weather the crunch, in the light of the Government’s track record (or lack of it) in making tax refunds, and the budget deficit, it is highly unlikely that the refunds would be made within six months.

For now, the Government has made

38

Tax Refunds: To obtain or not to obtain, and if so, how? some refunds under the new “FASTER” system, but these relate to sales from the most recent month/current claims. And even then, some businesses are complaining that there has been an inordinate delay in payment. The previous billions owed by the Government remain outstanding. Accordingly, in its attempts to secure “free financing”, the Government has failed to realise that it is jeopardising its future tax revenue streams as the “financiers” (businesses) would be unable to survive for very long on that basis. Such policies are therefore causing serious medium-to-long-term harm to the economy for the sake of the Government’s short-term gain.

No one is doubting that the Government has the right to raise taxes, but the levying of taxes needs to be in accordance with law.

Similarly, the Government is obliged to administer the tax system in a lawful manner. The detention of such funds (those to be refunded), particularly for the lengths of time that they have been detained, is certainly not in accordance with law. Taxpayers have been—and are continuing to be—deprived of their property, and any such delay therefore constitutes expropriation.

Notwithstanding, the recent implementation of a Tax Refund Bond policy whereby refunds outstanding prior to the implementation of the “FASTER” system would be made by way of a 10% bond repayable in three years (bullet payment) (“Refund Bonds”), and had encouraged taxpayers to accept such bonds on the basis that they could be traded in the secondary market.

Given that the market yield on Government debt stands at 14.25%, banks are only willing to buy the Refund Bonds at around 85% of their face value. Moreover, a secondary market has failed to develop. In essence, tax payers have been sold a pup. But desperation is the best marketing tool, and many businesses accepted the Refund Bonds simply because of the delays they already endured.

But how are these businesses expected to get their returns? There are potential mechanisms available to these taxpayers whereby refunds and other dues, e.g. subsidies

and other payments, could be expedited and obtained from the Government in a matter of a couple of months, if not a few weeks, regardless of whether the Government has funds to make payment or not. Any such refunds would be obtained with compensation for the lengthy periods for which the funds were detained.

It is surely in the taxpayers’—and ultimately the shareholders’—interest to consider these remedies, and to expedite the refunds (plus compensation) so that they can either be re-invested, thereby generating further returns, or distributed to shareholders.

Even in the unfortunate event that taxpayers have already opted for Refund Bonds, they are entitled to compensation for detention of the funds until such a time as the Refunds Bonds were issued, and this could be obtained in a similar manner. It may therefore be some consolation for those taxpayers that losses emanating from the delay in repayment over the years could still potentially be mitigated.

Moving forward, however, it would be in the taxpayers’ interest to refuse the Refund Bonds for the previous monies owed, as they would require to be sold at 85% of face value if immediately liquidated, and would otherwise require a wait of three years for the funds to be received. Even then there is no guarantee that the Government will make the payment. It is very likely that after three years the Government will issue further Bonds to replace the ones maturing. Instead of involving themselves in the perpetual cycle of Refunds Bonds and the issues arising therefrom, taxpayers should avail the other remedies through which refunds could be obtained in their entirety along with compensation in a couple of months; from a commercial perspective the latter option should be taxpayers’ first port of call.

The author is a dual-qualified practising English Barrister (London), and Advocate in Pakistan, specialising in taxation, commercial, and constitutional matters.

Suleman.Ahmed@Email.Com

COMMENT

48% NEARLY

OF PAKISTAN’S ELECTRICITY

CAME FROM NON-CARBON-BASED SOURCES IN AUGUST 2019

The country’s energy mix, while largely getting cleaner, nonetheless has a long way to go towards becoming environmentally friendly

I

t appears to be a contradiction, but it is true nonetheless: in August 2019, nearly half of Pakistan’s electricity came from sources that do not produce greenhouse gases, yet the country’s energy mix is not necessarily getting any cleaner.

According to data released by the National Electric Power Regulatory Authority (NEPRA), the proportion of electricity that Pakistan derives from non-carbon-based energy sources – defined as hydroelectricity, nuclear, solar, and wind power – hit 47.7% of the total electricity generated in the country, likely an underestimate as the vast majority of solar electricity production in Pakistan is not connected to the grid and thus not measured

by NEPRA. This number, of course, is inflated by the fact that the summer months typically tend to have much higher generation of hydroelectricity as the glaciers that feed the Indus River and its tributaries melt and make more water available in the dams. And this year, hydroelectric power generation increased by even more than usual.

“The recent torrential downpours have been a significant contributor to higher hydroelectric power generation in recent months, as August 2019 marked the fourth consecutive month of hydroelectric domination in the energy mix,” wrote Ali H. Zaidi, a research analyst at JS Global Capital, an investment bank, in a note sent to clients on September 27, 2019.

But even if one looks at a longer period, the broader evidence suggests that the share of non-carbon-based fuel sources for Pakistan’s power generation has been growing considerably. In the fiscal year ending June 30, 2019, approximately 36.9% of Pakistan’s electricity was generated using non-carbon-based sources, the highest in at least a decade, according

ENERGY

to data from NEPRA. And Pakistan’s use of dirtier fuels like oil and coal has been going down as a share of the overall fuel mix for power generation. In fiscal year 2019, coal and oil accounted for just 20.7% of Pakistan’s electricity production, the lowest proportion in at least a decade, if not longer.

The bulk of the remainder of Pakistan’s electricity comes from natural gas-fired power plants, which accounted for 40.9% of the electricity produced in the country in fiscal 2019.

However, a closer examination of the data suggests that while the overall fuel mix might be somewhat cleaner, the “dirty fuel” portion of the grid’s fuel sources is getting dirtier, and undoing efforts made in other parts of the country’s energy system to combat climate change.

Specifically, coal continues to rise as the fastest growing portion of Pakistan’s energy mix. As recently as fiscal 2016, coal accounted for just 0.1% of Pakistan’s electricity production. In fiscal 2019, it accounted for 13.3%.

And coal’s growth spurt does not seem to be over yet. Coal was the fastest growing fuel source for the country in the first two months fiscal year 2020 (July and August 2019), growing by 27.0% compared to the same period last year. Even the unusual growth in hydroelectric power was about 23.0%, less than the growth in coal during that period.

The change in Pakistan’s energy fuel mix that has taken place over since 2013 has been two-fold: oil, which was the dominant fuel for Pakistan’s electricity generation as recently as 2015, has slowly been displaced by two competing forces: natural gas in the form of liquefied natural gas (LNG) imports into the country, and coal-fired power plants set up as part of the China-Pakistan Economic Corridor (CPEC).

The increase in natural gas as a fuel is at least somewhat understandable, since oil had replaced natural gas when Pakistan’s domestic natural gas reserves began to run low towards the end of the last decade (around 2009 or so). By setting up LNG import terminals, the country’s energy industry has been able to substitute imported gas for domestic gas.

And natural gas is a cleaner fuel than oil. Natural gas-fired power plants emit, on average, 27.5% less carbon dioxide into the atmosphere as oil-fired power plants, according to data from the United States Energy Information Administration (EIA). So replacing oil with natural gas does, in fact, reduce Pakistan’s carbon emissions.

The problem, of course, is that Pakistan is not replacing oil with just natural gas. The country’s energy system also has one of the most rapidly growing coal-fired power plant industries in the world. Coal (the lignite variety most commonly used in Pakistan), according to the EIA’s data, emits 33.5% more carbon dioxide than oil-fired power plants, and 84% more than natural gas.

Between 2015 and 2019, Pakistan reduced its oil-fired power generation from 38,402 gigawatt-hours (GWh) to 9,123 gigawatt-hours, a 76.2% reduction. During that same time, gas-fired electricity generation has risen by 60.8%, going from 31,215 GWh in 2015 to 50,180 GWh in 2019. However, coal-fired power generation has expanded 159 times from 102 GWh to 16,312 GWh during that same period.

The next effect, therefore, has been to nullify any attempts to reduce the amount of carbon dioxide emissions by the thermal energy industry. Using data from NEPRA and the EIA, Profit estimates that carbon dioxide emissions from the thermal energy industry

39

in Pakistan have increased slightly – by about 0.6% – between 2015 and 2019.

In effect, the entire effort to reduce emissions by replacing oil-fired plants with natural gas has been wiped away by adding massive amounts of coal-fired electricity into the grid.

The caveat to this is the fact that thermal energy production during that period has risen by 8.5% while carbon dioxide emissions have increased by only 0.6% during that period.

However, as coal-fired power plants continue to increase their share of the country’s energy mix, carbon emissions are likely to continue increasing rapidly.

The one piece of good news for Pakistani energy consumers is that oil-fired power plants have – in the space of just four years – gone from being the base load of the electricity grid to being “peakers” again.

In their research note to clients, JS Global Capital noted that: “The share of furnace oil (FO) fell from 12% to 4% as FO-based plants only generated 506 GWh of electricity, marking a 69% year-over-year decline. This decline was mostly expected as we bid adieu to summer months, and with them, peak demand.”

Base load refers to the large power plants that run almost constantly to manage the minimum level of electricity demand that exists in the economy. These plants tend to be slow to turn off and on, and hence are kept on all the time. Peakers are power plants that can be turned on relatively quickly, and designed to

40

“The recent torrential downpours have been a significant contributor to higher hydroelectric power generation in recent months, as August 2019 marked the fourth consecutive month of hydroelectric domination in the energy mix” Ali H. Zaidi, research analyst at JS Global Capital meet increases in demand and turned off when that increased demand goes away.

Meanwhile, aggregate electricity demand in Pakistan declined by 8.2% in fiscal year 2019, the first year of the Imran Khan Administration, and one marked by a massive economic slowdown that has seen Pakistan’s gross domestic product (GDP) decline by 10.3% in nominal US dollar terms, the worst decline since the massive recession that hit the coun-

try in the immediate aftermath of the 1971 war.

Nonetheless, as the economy recovers, it will benefit from the fact that Pakistan’s energy grid now has significantly more electricity generation capacity than it did in 2008, the last significant recession experienced by the economy. As the Pakistani economy recovers, it will have the ability to ramp up electricity generation relatively quickly, without having to worry about having to add capacity. n

ENERGY

OPINION

Nadeemul Haque

Reform! What, why and for who?

of their parent’s generation? Only time will tell.

In a recent article in The News, Mosharaf Zaidi, a thought leader from the younger generation with an incisive pen and strong media presence inquired about the lack of durable reform to conclude reform does not endure because it is “neither truly driven by a purpose nor is it is rooted in the people.”

He points out in reform episodes such as the Musharraf Administration’s 2001 Local Government Act, and the 18th Amendment to the Constitution in 2010, were vitiated by the status quo. He correctly notes that ultimately reform will take hold when people see clear benefits in maintaining it. Distant reform with no clear benefits for the people does not endure.

For this reason, the 2001 Local Government Act was killed off, akistan was made with a commitment to democwhile the 18th Amendment remains under attack. racy and development but soon after the founding Zaidi’s analysis is correct. But we need to ask ourselves generation succumbed to greed and politically why, with centuries of global reform experience, we have expediency to accommodate the Mullah and make failed for 70 years? And moreover, “is there a demand for religion central to politics. The following generation reform and if so what sort of demand?”

(Midnight’s Children) led by the ignorant, self-cenImran Khan rode on the back of the youth to develop tered and hedonistic cult of the types Zardari, Sharif and Fazlur a new Pakistan but seems to be stuck merely with vendetta, Rahman, willfully destroyed all institutions and all semblance of perhaps because there is no demand for reform nor is there a dignity in pursuit of power and wealth. coherent debate outlining a vision for reform.

A new generation of Pakistanis is inheriting this mess — (As an aside, most Pakistani thinking and debate reruins of institutions, values, discipline, trust, as well as limited mains focused on speculation on foreign policy and parroting incentives for thought and learning. Yet it is heartening to see a aid prescriptions). renaissance of good writing, music and the arts rearing its head All governments whether democratic or not have sought in Pakistan. There is hope emerging like an unsteady baby. Will a mandate though infrastructure projects — roads, metro tranthey inherit the ego, thoughtlessness, willfulness as well as greed sit systems, and building things such as a stadium.

The Ayub development paradigm (based on the ideas of economist Mahbubul Haq) was one where progress was measured as projects involving expenditure and hardware persists. Even talk of education and health is no more than one involving building more schools and universities that train more people to let them be a part of the Nadeemul Haque brain drain. is an economist and the The demand, in other words, is for more development expenditures and not actual reform. And former Deputy Chairman of development, in turn, is seen as tacking on hardware to our inherited colonial state. the Planning Commission of This colonial state was designed for extraction has been kept alive to allow the “game of winner Pakistan, and the former Vice extract all!,” i.e., the winning political party can victimize the opponents to capture extraction gains for Chancellor of the Pakistan a guaranteed five years (despite the constitution saying five years is the outer limit not a term).

Institute of Development Development expenditures add more to extraction while reform would mean a dismantling of the Economics. He previously extractive state to develop a deeper reform that development requires. worked for decades at the In the 1980s, the world moved on from the ‘development as hardware’ paradigm. Experience International Monetary Fund.

Sustainable change requires building a constituency, not just coming up with good ideas

P

COMMENT

41

showed that productivity, enterprise and innovation are at the heart of the development endeavor.

It was further discovered that productivity, enterprise and innovation happens in an enlightenment state, where checks and balances are in place and there is a process of informed policymaking through learning and experimentation.

To develop such a state, reform would require a re-imagination of the state from developing and implementing policy to the legal and judicial system that manages rights and transactions. This is a huge and thoughtful agenda which requires building learning everywhere in public policy and avoiding the easy and certain agendas that the Pakistani power elites love to parrot.

The overarching ‘purpose’ has to be a clear modernization of the way the country functions and the way we live.

Why? Because development requires it!

Can such a change take place? Who will drive it? These are difficult questions to answer.

42

And I will not pretend to fully answer them.

It is clear that the colonial extractive state has strong foundations. By design its functionaries benefit from it while vested interest born of extraction are not likely to bite the hand that feeds it. in the post-colonial period, international development partners have arisen to push money to the status quo.

It is obvious that the colonial extractive state will not easily change and has no ability to reinvent itself. We have seen 70 years of a demand on various aspects of the change required such as reforms in the structure of the civil service, local government, police, education, health, public enterprises.

But the colonial extractive state distorts or defeats these interventions to preserve extraction.

By design the colonial extractive state seeks central control of cities and markets to inhibit entrepreneurship and private enterprise.

Even the provision of education is limited to what serves its interest and no more. It will resist efforts to liberalize or decentralize.

Current development efforts based on

projects and programs seek to initiate reforms while keeping the colonial extractive state intact, which only strengthens its extraction and centralization capabilities.

Development, though measured by global indicators (e.g., growth rate, the proportion of educated people in a country, mortality and other health measures), is an aggregation of local solutions to local problems through a variety of research and innovation initiatives at the city level, in markets and in universities.

The colonial extractive state must, therefore, be dismantled to allow a learning and decentralized state to be developed.

Only when public intellectuals begin to see the centrality of the modernization of the state (and the dismantling of the colonial extractive state) to development will the constituency for change develop.

That is when a detailed vision and plans will become available for a change leader to take advantage of. We have probably missed the opportunity presented by a well-intentioned leader like Imran Khan because no such discourse was available. n

COMMENT