CONTENTS 22
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10 Unbanning Tinder and LinkedIn woes - this week in Pakistan’s business and economics Twitterverse 12 Lahoris are ready for apartment living - if only the real estate agents would let them do it
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17 What’s in a name? Everything, apparently 19 Why the SBP has JazzCash and EasyPaisa on their toes 22 Pharmaceuticals: how the locals are beating the multinationals
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28 The whitespace in the $2 billion advertising industry of Pakistan Ali Abbas Sabir 30 PABC, Pakistan's only can-maker, seeks IPO
Profit
33 Other People’s Money, the best kind of money Ahsan Manzoor
Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan Abdullah Niazi l Meiryum Ali l Shahab Omer Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk
Readers Say A well-researched story by @AribaShahid on the controversy surrounding the high price of Sputnik-V vaccine and why you can't get it. Too many middlemen spoil the broth: Rdif (Russian sovereign fund) -> human vaccine -> aurugulf -> Maktoum (Dubai royal family) -> AGP -> hospitals. Apropos: The urban upper middle class are desperate for the vaccines of their choice. Why don’t we let them pay for it? @2paisay, Twitter Wonderful article but I disagree with the end bit - the govt is providing free inoculations and it's in the best interest of the country to get whatever vaccine is available and let the govt decide the best course of action. Being able to shop for vaccines will only delay rollout. At the moment, with supply chains limited and everything being G2G, I think it will. It's literally a case of getting as many people vaxxed now as opposed to waiting for a month or two. The travel issue can be solved through constructive dialogue between govts. This is all speculation of course. I think it will delay rollout. Also adding we don't know the impact of mixing vaccines yet, and may not know until sufficient research is undertaken. Also, $45 for sputnik is high. Honestly, the vaccine everyone is shopping for is Pfizer and that will end up being much more expensive. It's 19.50 per dose for larger orders in millions, assuming a 30% markup for smaller private sale orders, about $46 + 40% PK margin = around $65. This might be higher because of logistics, but the logistics aren't much different from what we did for Sputnik ie 25c. Also, that's the price per dose for the USA. Israel paid closer to $35/dose for bulk orders. Expect a lot more fleecing especially if it's for private sale. Chugtai estimated 25k/dose initially. Apropos: The urban upper middle class are desperate for the vaccines of their choice. Why don’t we let them pay for it? @Nutellastan, Twitter
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What's your take, is there still demand for privately available vaccines? If yes, then that is very interesting. I am totally for opening up the market and letting the end customer decide whether they want it or not. The efficacy of many vaccines after the first shot is low against the Delta variant. I still believe AGP could have got a better deal from the UAE. Reluctance on part of Pakistanis for Astrazeneca is a little too much. It can be available on much less. Apropos: The urban upper middle class are desperate for the vaccines of their choice. Why don’t we let them pay for it? @Aniqazafar, Twitter I remember a lot of people were arguing over the fact that we should let it be available at whatever price level a private company sets, because avail-
ability was important against putting a price cap. What happened to that debate? Apropos: The urban upper middle class are desperate for the vaccines of their choice. Why don’t we let them pay for it? @Fro86, Twitter We paid Rs. 12,300 for Sputnik and have no regrets. Those who could afford, paid for it. I saw a few companies bring their senior staff members for vaccination. It was in limited quantity and many customers were turned away. Apropos: The urban upper middle class are desperate for the vaccines of their choice. Why don’t we let them pay for it? @RumaisaMohani, Twitter Curious question. Would you consider it karma that they could only sell 50k doses? Even if they were to import further I doubt anyone would purchase it now. Apropos: The urban upper middle class are desperate for the vaccines of their choice. Why don’t we let them pay for it? @moltres89, Twitter If I'm not wrong, most of the upper middle class families got the Covid 19 vaccination free of cost now that the government has opened up to everyone eligible. The remaining ones have simply not gotten their doses because they are going to use their foreign trips so that they can get the Pfizer shot because of vaccine elitism. Apropos: The urban upper middle class are desperate for the vaccines of their choice. Why don’t we let them pay for it? @ranamuzamilhus5, Twitter Simply amazing story from @taimmzz that goes beyond the usual "formal sector good, informal bad" wisdom that's passed on in the financial services industry. Apropos: Is financial inclusion overrated? @MutaherKhan, Twitter Except financial inclusion is not the issue but the system that is making the inclusion ineffective, with a system catering sincerely to the needs of the financially excluded, financial inclusion would most likely bring the benefits as shown by its global stats. Apropos: Is financial inclusion overrated? @alinafaba, Twitter Also, banks are not interested in giving out personal loans because the government is crowding out the private sector. More than half the deposits are invested in govt securities and our fiscal deficit explains that bit. Our banks don't need to take risks thanks to our low tax revenues. Apropos: Is financial inclusion overrated? @iopyne, Twitter
COMMENTS
IN BRIEF Prime Minister Imran Khan has said that a comprehensive strategy has been devised for the first time in the history of Pakistan to bring the poor out of poverty, in the shape of the Kamyab Pakistan Programme.
“There will always be some corruption in every country. The US, European countries are also not free of corruption. Pakistan’s problem is incompetence and flawed decision making, not corruption.” Mian Mansha, Chairman of Nishat Group
Rs 2.74 trillion:
The federal government has planned to borrow Rs2.747 trillion (over $16 billion) gross foreign loans in the next fiscal year to finance the budget deficit and for repayment of external public debt. This would be an increase of 18 percent from the last year when the government borrowed Rs2.286 trillion. The talks between Pakistan and the International Monetary Fund (IMF) over a sixth review of the $6 billion loan programme remained inconclusive. Finance Minister Shaukat Tarin said the government cannot put burden on the poor, adding talks with the Fund would continue.
The Sindh government on Monday allowed the resumption of business activities in the province for six days a week, following the National Command and Operation Centre’s (NCOC) decision in this regard.
$3.17 billion:
The G-20 has suspended Pakistan’s debt payment of $3.17 billion by the end of this year, announced federal minister Fawad Chaudhry after a meeting of the federal cabinet, claiming this is yet another positive development for the country’s economy.
Finance Minister Shaukat Tarin has agreed to amend the clauses pertaining to arrest of tax evaders in the finance bill. The Finance Minister said that the finance bill will be amended and the arrest clause will be changed.
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Unbanning Tinder and LinkedIn woes this week in Pakistan’s business and economics twitterverse
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his week, Profit tells you why it is time to unblock Tinder in Pakistan, not to swipe when you’re bored, nor to find the love of your life, but to find your next boss. We look at photos and who they exclude, the toxic mess that LinkedIn is quickly becoming, and the woes and benefits of online education. The pension time bomb Pakistan is facing also features. Along with this, Ariba Shahid brings you a lot more in this week’s social media roundup.
Fond of fonts
On online learning
We don’t know how true this statistic is, but we do know that it is true. Online classes are no fun and seem like a very expensive way to watch YouTube videos. An inefficient way as well given how much better the Indian youtube uncles are at explaining things. Think about it, when you spend on university you pay for the entire experience, something you don’t get over zoom at all. {Editor’s note: One of the editors of this piece claims that the best course they were a part of at university was Detective Fiction taught at LUMS taught by Professor Anam Haq - all over zoom. Goes to show that with the right professor and subject, online teaching can be done right. However, we doubt if any online business course anywhere could achieve the same effect }
Unblock Tinder please
Excuse us as we gag over the font in this document. They definitely need an introductory course to formatting documents. This is not how FBR documents are to look like, in fact this is not how any document is to look like. Imagine the cringe you’d have if we printed our magazines in this font.
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The job market is scary. Yes, we know. And we know LinkedIn is primarily for feeding your egos than for finding a job. So what is a person to do? Boast about credentials on Tinder in hopes of matching with your new boss. Downside is, Pakistanis can’t because Tinder is blocked here. Maybe this is the way we can get it unlocked. Because let’s face it, hunting for jobs on Bumble is even sadder than hunting for them on Tinder.
Pension time bomb
One day I was going for an interview ...
Pensions were a ticking time bomb for Pakistan. I guess that is being diffused through moves made by the KPK Govt. Kudos to them. Please read the brilliant article by Zafar Masud in the last addition of Profit for more: Pakistan’s ticking pension time bomb.
Achar supremacy
We often think twitter is crazy, but boy are we wrong. LinkedIn is where the real craziness is at. Sometimes we think it’s a competition to see who comes up with the most absurd post. I mean why else would someone write stuff like this? The stopped-to-feed-a-hungrydog-and-the-dog-turned-out-to-be the-interviewer gag has morphed and evolved into what we at Profit would very much like to officially declare completely and totally Cray-Cray.
LinkedIn mania Why doesn’t achar get the importance it truly deserves? Why aren’t Pakistanis creative about ways to promote local flavors and cuisines. With a long shelf life, the export potential is high too. Just needs new ways of branding. Just think about it, why would people that have never had achar not want to keep having achar if they try it once? Way too many LinkedIn tweets this week. I think you’re at the sad stage of your life when you find LinkedIn addictive. Get well soon, Ridha.
SOCIAL MEDIA ROUNDUP
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By Shahab Omer
n a speech to Parliament in 2016, current Prime Minister and then opposition member Imran Khan defended his ownership of a flat in London. This was the height of the panama papers, and under discussion were the different flats and apartments that then Prime Minister Nawaz Sharif did or did not own. During the speech, Imran Khan mentioned an anecdote in which when he had bought his own London flat back in the 1990s, he had told Mian Nawaz about it at a social gathering. Curious about it, Mian Nawaz asked what a penthouse was, and Khan diligently explained that it was the top floor flat of a building. To this, Mian Nawaz quite earnestly asked what Imran Khan would do if there was a tornado and the top flat was blown away in it.
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The little story received bipartisan peels of laughter from the house, but what it also did was say something about the Lahori obsession with owning land, and the resultant aversion to apartments and vertical growth. Karachi is still the largest city in Pakistan, but by some measures, the greater Lahore metropolitan area may now be almost equal in size, if not already somewhat larger. Yet for most of its history, Lahore’s residents have shunned the notion of vertical expansion of their city’s size, which is why it is difficult to find apartments in the city. This has largely been attributed to the ‘Punjabi mindset’ of wanting to own the land beneath your feet. And while this has been a seemingly reasonable cultural explanation for a long time, another explanation is that up until now, Lahoris probably never needed to depend on apartment living. With a smaller population and no need for a massive workforce, Lahore has been a metropolis that has largely maintained in its residential areas either cramped but flat enclaves, or large suburban living conditions in its more posh areas. But as the city expands rapidly, Lahoris are going to have to get used to apartment living. In recent years, however, there has been a move towards
changing that, with several real estate developers investing in building up apartment blocks in the city. And indeed, some of them have gotten to become quite high end: it is now possible to buy a $1 million apartment in Lahore, at least insofar as listed prices on Zameen.com are concerned. And while all of this sounds very promising, there are serious setbacks because of how the regulation of apartment buildings in Lahore works.
Lahoris are catching on
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n Lahore, the Lahore Development Authority (LDA) has recently given permission for the construction of high rise buildings on plots of ten marlas, a move that has gotten investors deeply interested in the possibility of investing in apartments in Lahore. A ten marla space for an apartment means not just a lower investment and building cost, but also the construction of smaller apartments that are more in need since apartments are preferred by either young couples, students, or individuals rather than families. This also means that these apartments do not have to have facilities like a gated society, recreational areas, and strict rules that larger apartment complexes like Askari XI or Askari V do in Lahore. It has also meant that now that lower budget projects can be done, Lahore’s real estate industry is up to its all tricks of guaranteeing payback to investors to reel them in. Well placed sources inside LDA are deeply concerned about amendments to the High Rise Buildings Act and the rapid rise of high-rise buildings in the city. They believe that the city’s infrastructure does not allow high-rise buildings. “The biggest problem with an organization like LDA is that the staff here is far behind in regularization. Making laws and later regularizing them is a responsibility that does not happen here. Now, if we first talk about the profit-on-investment of the newly developed high-rise buildings in the city, then the LDA has no concern about these moves. However, it is the LDA’s job to inform the public about any advertisements related to real estate development or any such fraud. This is like an advertisement published by the LDA about illegal societies that such and such a housing scheme is illegal so the public should avoid any kind of buying and selling there, similarly, guaranteeing a return on investment is an illegal act on projects that do not yet exist, which the LDA should inform the public about it. We also receive daily reports that developers of many hotel apartments and residential and commercial apartments are guaranteeing a return on investment to the public.” This is, of course, very typical of the great
scam that is real estate in Pakistan. The first thing to look at is whether there is a financial institution behind this guarantee or whether it is an individual guarantee. If it is an indivisible guarantee then it has no value. If a developer does not return a profit to an investor despite having a contract, the investor cannot do anything. These guarantees are fake and have no value because no bank or insurance company is backing such projects, and when the sales team of these developers are asked where the guarantee will come from, they reassure the investor that the developer is a big party and because of that there is no question of giving a return on investment, which is not really an answer - just more words. “Zameen.com also urges the developers of the projects it markets to declare a guarantee on the investment, which is wrong. As you can see, many developers do not guarantee a return on investment in their advertisements but offer to those who contact them saying that investing with them will directly benefit the investor. Other agencies, including the LDA, need to check this scam,” continues our source. The sources further said that the second major issue is the rapidly rising high rise buildings in the city as LDA had earlier allowed the construction of apartments on an area ranging from four kanals to one kanal and now a developer with an area of 10 marlas can build a multi-storey building. “If you look at the LDA rules now, it is clear that previously a covered area of one thousand square feet had to be left for parking a car, but now the same area has been increased from 1000 sqft to 1600 sqft. Now it is important to note that due to rising population and property prices, people prefer to buy a one-room apartment, and a one-bedroom apartment is about 500 to 600 square feet in size. Now, for example, if a small apartment is constructed on 600 square feet, it means that there is only one car parking space for three apartments. That is, if the owners of all three apartments have cars, the parking lot for one is in the building, but not for two other cars,” they said. “An interesting question arises here as to where the other two vehicles will go, they will surely be parked on the road outside.In Lahore, earlier high rise buildings were mostly used for offices and in the evenings when these offices were closed, the building was also closed and there weren’t many parking issues but now most of the high-rise buildings that are being constructed are residential apartment projects that will be used 24 hours a day. Immediately, these laws may not have any effect, but in the next five to ten years, when hundreds of highrise buildings will be built in the city, parking will become a big problem and by then nothing could be done about it. LDA officials should think about all these things before making
“The situation in Punjab is quite different. The feudal culture and its traditions are also found in the lower middle class and the poor man who prefers to build his own house on his land rather than investing in a flat or apartment” Mian Haider, real estate agent policies.” The third most important issue is that no authority or committee has been set up by the LDA for the annual audit and maintenance of all the newly constructed high rise buildings. This means that people who invest billions of rupees in these high rise buildings, eiter to live in or to rent out, may be at risk. If you have your money parked in such a building, and it does not fill up soon, then the building is likely to be in trouble and with it the money of investors. If you live in these buildings, then those buildings are in danger of being overrun. What happens in foreign countries is that an audit committee is formed at the government level for high-rise buildings whose job is to audit the building annually. This audit checks to see if the building management or the developer has maintained the building as it should have. The average age of a building is usually ten years. If nothing is done there for ten years, it will deteriorate as a result, the value of the building where the investor has invested so much will be lost. Most of the issues, including the passage for fire exits for buildings built on small plots, indicate that no significant work has been done in the rules of high-rise buildings,” they informed.
How they get you
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o get an idea of the minefield that investors face out there, Profit called a marketing representative for Zameen.com posing as an investor. The marketing representative of Zameen.com admitted that people were indeed dreaming of a guaranteed return on investment. According to their representative, Zameen.com had two categories to invest in apartments, the first of which was to invest in residential apartments. The representative
REAL ESTATE
insisted that Zameen.com take responsibility for all investments made through Zameen. “We have two categories for investing in apartments. The first category is residential apartments. To invest in these apartments, Zameen.com gives the first guarantee that these apartments are approved by LDA and FBR. The other important thing is that there is a regular installation plan to buy such apartments and these apartments can be bought through easy installments,” they said. “Now, if we talk about the purchase of an apartment, that is, the investment made in it and its return, the first thing is that the return on this investment will be received only when its installments are over. The guarantee of return on investment is that if there is a two and a half year installment plan and as soon as the plan is completed, the possession will be handed over to the owner. If for any reason there is a delay in getting this possession on committed time, the rent of this apartment will start getting to the investor from the next day even if the apartment is not used by anyone.” When this scribe asked how much the rent would be and who would pay the guaranteed amount, the representative replied that 6 percent of the total amount would be paid to the investor in the form of rent. “For example, if the value of your apartment is RS 10 million, then six percent of the total amount is RS 0.6 million. Then we divide this 6 percent by 12 months and the monthly rent becomes RS 50,000. Rental checks are not issued every month, but four-month lump sum checks are issued,” they said. “That is, every four checks are issued to an investor three times a year. However, this
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“There are two ways to guarantee a return on investment. The first method is an agreement between the two individuals and the second method is to take an investment from the public at large and guarantee a return on investment whereas the regulatory frameworks only look into matters of public at large” Sajid Gondal, SECP official payment is binding on the developer and it is guaranteed that when the contract is written between the buyer and the developer, all these terms and conditions are written in it and return on investment is guaranteed in the form of rent. This method saves your investment. The biggest thing is that when an investor buys an apartment, he receives a receipt for the purchase from the developer and also receives a receipt from Zameen.com. Receipt from Zameen. com means that in case of any kind of fraud or misrepresentation with the investor, Zameen. com will also fully support the investor.” When asked on what basis the developer is giving the guarantee, the Zameen.com rep said that the financial status of the developers is very good and giving return on investment is not a problem for them. “In Gulberg, for example, a project called 3Js has started. Zameen.com completes its work before taking responsibility for any project in which we first see if the land on which the project is going to be built is in the name of the developer. Now you can see that the developer of the said project is Sitara Heights which is a big developer. The said project is being built on an area of four-kanals, which is a common investment for the said developer. However, if anyone does not believe the said developer, then Zameen.com has its own personal projects where the return on investment is guaranteed. As Zameen.com has the credibility and trust of the people because there is not a single case of fraud in our projects. Our project in Gulberg is called Zamin Oram and in front of Lahore Gymkhana. We also have a project called Zamin Quarting which is a very suitable place for investment.” Moeed added that the second type of investment is the hotel apartment in which if an investor invests today, he will start getting a return on investment after exactly 45 days. “For example, the Pearl Continental Hotel offers a variety of rooms. Whenever a hotel is built, the hotel management sells its shares in the market and the property becomes public property.
Similarly, rooms of these hotels are also sold and the buyers get lifetime rent of these rooms in the form of return on investment.” Essentially, what happens is that these private hotels, whether they are Radison or Hotel 1, keep paying investors for the rooms regularly and they keep getting rent while the hotel operates and tries to make a profit. Now, the interesting thing is that Zameen.com’s own project which was introduced under the name of Zamin Oram is claiming that 90% of the sales have been made in this project. However, the project pamphlet Profit received from Zameen.com includes apartments and penthouses such as studios, one-bed, twobed, three-bed, single-storey and duplex, in which single-storey apartments, including single and double-beds, have almost sold out. The value of these apartments ranges from around RS 10 million to RS 50 million. Installation plans have also been introduced for the sale of these apartments, in which these apartments can be booked by paying an installment of up to 36 months and depositing 10% of the total amount at the time of possession. Similarly, the floor plans of the 3JAYS Tower project being marketed by Zameen. com are being sent to investors. The project has hotel apartments ranging in area from 351 square feet to 458 square feet. The cost of these apartments ranges from RS 10 million to RS 13.5 million. However, in this project the investor is asked to make a 30% down payment and the remaining amount can be paid in forty eight installments.
Is Lahore ready for apartment living?
M
ian Haider, who is a property agent in the DHA Lahore area and has previously worked in Karachi and Islamabad, believes that apartment culture has not yet become very popular in Lahore, for a number of reasons. “In Karachi, we have seen that flat and apartment culture is very common, one of the main
reasons for which is the high cost of property and the large population. People there are easily accommodated in apartments or flats. Constructing a palace-like house or mansion is a thing of the past there, it is just not just for everyone,” he says. “There are many desires, but money is also necessary to fulfill it. In a flat or apartment, people can get accommodation according to their budget. All the amenities they desire become available, as well as some factors that prove the usefulness of a flat, such as the scarcity of land in cities. In this age, buying land in cities and building your own house is a very difficult task. First of all, land is not so easily found and even if it is found, it either does not fit in your budget or its location etc. does not suit your mind.” He has a point. Making a house in the city is a cacophony of begging for approvals, always being over budget, having to build the house somewhere far away in a new society and never quite being completely satisfied with a house that you are paying too much money to build. From finding bricks to labour, it is all a massive, over priced, and overwhelming process. An apartment on the other hand, one buys or rents outright and sometimes you do not even have to worry about interior decor. Somehow, despite all this, Lahore and Punjab in general continue to favour houses over apartments. “The situation in Punjab is quite different. The feudal culture and its traditions are also found in the lower middle class and the poor man who prefers to build his own house on his land rather than investing in a flat or apartment. Similarly, if we talk about Lahore, Gujranwala, Faisalabad or Multan, the main areas of the cities are very expensive, but some distance or a few distances from the city center, the land is still cheap in rates. If we talk about Lahore, then the lands in areas like Bedian Road, Jallo Mor, Harbanspura, Barki Road are very cheap as compared to the central areas of the city where people prefer to construct or invest in farm houses.” In Lahore, since the government has approved the construction of high-rise buildings on small plots of land, developers have also started constructing apartments here. It is not that the apartment culture in Lahore is non-existent. If you look at areas like Ferozepur Road, Firdous Market, Ghalib Market, Ichhra, Jail Road, etc., there have been small hostel-like flats or apartments for almost the last twenty years that a common man can rent and buy. Similarly, apartments and flats were built at the government level to accommodate as many people as possible. “We also take the example that there are Askari apartments in different parts of the city, but if you look at their buying and selling, those apartments are expensive, and
they usually attract people that want to buy the apartments to live there rather than attracting investors. A big reason for this is the security provided by the Askari apartments and the beautiful environment in the residential population. The fact that Askari is a military project also means that people have more trust in the apartments, and that there is next to no chance of any fraud occurring. Compared to that model, new developers who are building apartments and attracting people to invest here are also having to resort to installment-like facilities to sell their apartments in the busiest areas of the city. It is the same old fears that stop people from investing in apartments. The general impression here is that if the building is destroyed due to a natural disaster or accident after acquiring the ownership of the apartment, then where will the owner of the apartment find his place later as he has the ownership rights of the apartment but not of the land. Similarly, many apartments charge their residents a monthly stipend in the name of security, sanitation and other facilities. There are many factors that prevent an investor from investing in these buildings. “However, an investor immediately invests in commercial apartments where reasonable rent is expected and the investor also sees a profit on his investment. Investing in hotel apartments is undoubtedly a good idea and this type of investment is being made all over the world but considering the frauds in the real estate sector in Pakistan, investors try to invest in a built-in hotel instead of Invest in a building that has just passed the map. It can be seen that the sales representatives of Zameen. com are also preferring to invest in such hotels which have not been constructed yet. Now the question arises that if an investor invests RS 30 million in a building which is not ready yet, then where is the profit return on investment being given to him in forty five days. Of course, this return is not from a profit to a developer, but the money paid by the investor will be returned to him in installments, which will be called profit,” Haider added.
Same old real estate tricks
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s with all real estate related news in Pakistan, the biggest issue is always developers taking money from investors before they have completed them (which is illegal) by making grand promises, and then running off with the money. Speaking to Profit, Sajid Gondal, an official of the Securities and Exchange Commission of Pakistan (SECP), said that taking deposits from the public for projects which are not yet complete falls under the category of illegal deposit taking.
“There are two ways to guarantee a return on investment. The first method is an agreement between the two individuals and the second method is to take an investment from the public at large and guarantee a return on investment whereas the regulatory frameworks only look into matters of public at large. However, in order to collect deposits or investment from the public, it is necessary to obtain licenses from financial institutions, for example, banks and insurance companies and it requires a legal structure. In Pakistan, the SECP had started issuing licenses on an experimental basis in the name of crowdfunding. What happens in crowdfunding is that ideas for different businesses are pitched on a digital platform and then those business ideas are approved by a regulatory framework. After approval, investment can be obtained from people on approved business ideas, but this is the case with Public at Large. Now it is illegal for any developer or institution to guarantee and market a return on investment for hotel apartments or residential and commercial apartment projects. There were also such practices in Islamabad that people were shown an attractive dream that if an investor booked an office or a flat in a building and paid the full amount, he could get a return on investment only a month later. Now it is to be noted that the return on investment was given on a project which has not been completed yet and it is an illegal act on which the SECP has taken action several times. We call it illegal deposit taking because they are giving profits on public deposits. A similar example was the Master Tile’s La Ville De Paris scheme in Gujranwala. The SECP has also launched an investigation against that project,” Gondal informed. n
REAL ESTATE
What’s in a name? Everything, apparently
Byco has gotten it bad. Is a name change really as important as they think?
B
yco just can’t catch a break. As this magazine has previously noted, every possible accusation has been lobbed at the company. The refinery has been accused of defrauding state-owned oil companies, violating international sanctions, and creating an artificial shortage in the Pakistani oil market – among other things. And it doesn’t matter what the company’s lawyers and PR team come up with, the stink doesn’t seem to be leaving Byco. Nevermind that (as Profit has previously mentioned) data presented in the government’s own inquiries found that Byco’s storage capacity helped calm the oil crisis, rather than aggravate it. The name ‘Byco’ has become a byword for drama, and supposed corruption. So,what route did the company decide to take? What solution did it come up with? Did it decide to fix the books, find new
PETROLEUM
evidence to support its case, start a robust PR campaign, or do all three? Nope. It decided to disappear. On June 14, the company notified the Pakistan Stock Exchange that it had decided to rename itself. “The Board of Directors of Byco Petroleum Pakistan Limited (the “Company”) has considered and approved a change in Company’s name from’ Byco Petroleum Pakistan Limited’ to ‘Cnergyico Pk Limited’, the notice read. This decision has been previously approved in the extraordinary general meeting held on April 26, earlier this year. The name change faced some derision on social media. Some twitter users asked how to pronounce the weird sounding name. Others suggested that the name change was simply a way for Byco to wash its hands of the old name, and thereby try to erase the alleged scams from people’s memory. Certainly the CEO of the company, Amir Abbassciy,
thought this might work. In a press statement, he attempted to connect the name to the word ‘synergy’. The term is a classic example of corporate speak. It actually refers to the phenomenon that the combined power of a group working together is greater than the total power achieved by each working separately. And so, as Abbassciy says, “The oil and gas industry is currently undergoing a metamorphosis, exploring alternate energy sources, responding to climate change, and evolving new business models. We are intensifying our investment to further modernize our business and to cater to tomorrow’s petrochemicals and energy requirements of our nation. To commemorate this investment, we are rebranding ourselves as Cnergyico Pk Limited to reflect our new positioning in the industry. We aim to create synergy in the energy vertical, leveraging our strengths and
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new sources of energy that are developing both locally and globally.” That was five sentences of corporate speak, and 30 seconds of your time, you will not get back. However, the CEO did manage to say something of substance: that the oil and gas industry is currently going through a metamorphosis. That, more than the alleged scandals, is the real story of Byco’s fall from grace, and why a name change was deemed necessary. Cnergyico is a portmanteau of Chemicals Energy Integrated Company. The company was founded by Parvez Abbasi in 1995. Construction on the first oil refinery with a capacity of 15,000 barrels per day started in 2004, at Mouza Kund, Hub, Balochistan, increasing to 30,000 barrels per day by 2010. In 2007, Byco set up its first retail outlet in Sukkur and now has 400 forecourts nationwide. Then in December 2015, Byco commissioned what was at the time the largest refinery in the country, with a capacity of 120,000 barrels a day, taking the company’s combined capacity to 155,000 barrels per day. Between 2015 and 2018, the company’s net income was positive, increasing from Rs72 million in 2015, to above Rs1000 million in
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2016, all the way to Rs5,020 million in 2018. Its net sales hovered below the Rs10,000 million mark, before jumping to Rs166,290 million in 2018. And yet despite net sales increasing in 2019 and 2020, the company made a loss of Rs1,684 million in 2019, and Rs2,431 million in 2020. What happened? Most Pakistani oil refineries make three products: furnace oil, liquefied petroleum gas, and naphtha. These typically have very flat margins. To make matters worse, in the last few years, the electricity generation sector in Pakistan switched over from the much more expensive furnace oil to the much cheaper liquefied natural gas (LNG). In fact, in the company’s annual report of 2020, Byco pointed to the consistent decline in local consumption of High Sulfur Furnace Oil (HSFO), which stood at one third of what it was in 2017. Two other issues occurred: first, because of the International Maritime Organization’s 2020 restriction on the use of HSFO as bunker fuel from January 2020, HSFO prices nose dived in the international market between November 2019 to March 2020. Second, the Pakistani government changed the specification of imported motor spirit and diesel to Euro V,
which means refineries now have to upgrade to be able to produce those specifications. And that is why Byco has been struggling. To be fair, it has tried new methods: for instance, last year it announced the seting up Fluid Catalytic Cracking (FCC) unit to convert furnace oil into motor spirit and diesel (to tackle problem 1); and a Diesel HydroDesulfurization (DHDS) unit to remove sulfur from diesel and produce Euro V compliant diesel. Both units will be operational by 2024. It doesn’t matter whether the company is called Byco, or Cnergyico, or ‘Number 1 Best Oil Refinery’’. What matters is that the demand for furnace oil has dropped, and as one of the largest refineries in the country, the company now has to figure out how to combat that. Otherwise, the name change will have been for naught. n Corrections and amplifications: An earlier version of this story quoted social media statements from individuals implying wrongdoing on the part of Byco. Those statements have been removed. The derivation of the new name had previously not been mentioned in the story, and has been added to this version. The story has been edited to reflect that change.
PETROLEUM
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By Taimoor Hassan
ffective July 1 this year, the State Bank of Pakistan (SBP) has decided to continue fee waivers on inter-bank fund transfers on transactions up to Rs25,000 limit, in a bid to keep digital transactions inexpensive for the low-income demographic of the country which will help promote financial inclusion. But while the SBP’s push is noble, the captains of financial inclusion, branchless banking players JazzCash and EasyPaisa that have helped bank the low-income segments of the population, are unhappy as IBFTs form a major source of revenue for these players. Consequently, this might affect the goal of financial inclusion if these companies see a decrease in financial viability. In a recent circular, the central bank has instructed that commercial banks, microfinance banks (MFBs), and electronic money institutions (EMIs) shall continue to provide free of cost IBFT services to their individual customers up to, at least, a minimum aggregate sending limit of Rs25,000 per month per account or wallet. Individual customers of banks, MFBs, and EMIs shall continue to send out as many free IBFT transactions as long as they remain within their monthly limit of Rs25,000. However, financial institutions have been allowed to charge 0.1 per cent of the transaction amount as IBFT fee for transactions beyond the Rs25,000 limit, which the SBP deputy governor said will help banks recover any costs associated with providing these services. The central bank has further capped the IBFT charges at Rs200. Sima Kamil, deputy governor at SBP, said that limiting charges
BANKING
on IBFT transactions is primarily aimed at protecting the lower-income groups in the country, and it is the low-income segment for whom IBFTs would in actuality be free of cost. “According to our estimates and the data that we have analysed, the majority of the customers that carry out IBFTs will be protected and their transactions will remain free,” she said. While the banks have been allowed the discretion to choose to charge 0.1 per cent of the transaction amount or Rs200, the SBP has instructed the banks to charge whichever is the lowest amount, encouraging them to further slash the charges at their discretion to promote the adoption of digital payments in the country. The initial waiver that was effected at the onset of the pandemic in March last year removed IBFT charges for all transactions regardless of the transaction amount or limit.
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According to our estimates and the data that we have analysed, the majority of the customers that carry out IBFTs will be protected and their transactions will remain free Sima Kamil, deputy governor SBP
Among other measures, the waiver was put in place on March 18 to encourage people to use online channels for fund transfers and avoid going to bank branches to control the spread of the virus. “Considering the business and economic situation during the COVID-19 lockdown, the previous decision of waiving charges on IBFT by the State Bank of Pakistan had a significant positive impact on the overall economic challenges which we faced during this time,” says Mudassar Aqil, CEO of Telenor [Microfinance] Bank and EasyPaisa. “It enabled the population, in general, to stay safe within their homes by encouraging seamless digital transactions while at the same time, empowering economic activities to continue despite physical operations coming to a standstill,” he adds. “All Intra Bank Fund Transfers, as well as incoming interbank fund transfer services, shall remain free of charge,” the SBP has now instructed. Moreover, continuing the old practice, financial institutions have been advised
to ensure proper disclosure of charged and free IBFT amounts along with applicable fees to their customers by sending regular notifications through SMS, apps and email. “After every digital transaction, the customer shall receive free of charge SMS on their registered mobile numbers intimating them about the transaction amount and the charges being recovered,” An adjunct guideline in the circular also instructs the aforementioned financial institutions [banks, MFBs and EMIs] not to limit the number of fund transfer transactions on their customer accounts or wallets unless there are genuine concerns related to AML/ CFT or frauds.
Encouraging numbers
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he waiver on IBFTs comes on the back of an encouraging increase in the number of inter-bank fund transfers post-Covid. According to data
from the State Bank of Pakistan (SBP), before the central bank waived charges on IBFTs, the number of interbank fund transfers were recorded at a daily average of approximately 188,000, whereas after the intervention, the number rose to more than double on a daily average basis. On a quarterly basis, the number of IBFT transactions using internet banking channels have increased 117 per cent from the third quarter of FY20, January to March 2020 period when the waiver on IBFTs was put in place, to the second quarter of FY2021 (September to December 2021 period). For Q3 2020, IBFT transactions via internet banking were 4.1 million whereas, by Q2 2021, transactions reached 8.9 million in volume. On the mobile banking side, transactions were 4.3 million in volume during Q2 2020 that reached 18.8 million transactions in Q2 2021, an increase of over 300 per cent. It is this encouraging growth in IBFTs that underpins the thinking at the central bank that continuing fee waivers would increase
Considering the business and economic situation during the COVID-19 lockdown, the previous decision of waiving charges on IBFT by the State Bank of Pakistan had a significant positive impact on the overall economic challenges which we faced during this time Mudassar Aqil, CEO of Telenor [Microfinance] Bank and EasyPaisa
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It is much needed for helping towards the sustainability of IBFT and other associated transaction costs which is essential for documentation of our economy. We look forward to working closely with the SBP towards promotion of digital payments and financial inclusion in Pakistan Aamir Ibrahim, CEO at Jazz
digital financial transactions and consequently help digital financial inclusion. However, the increase might not have necessarily come from new users.
Why are JazzCash and EasyPaisa unhappy?
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ndustry stakeholders, though happy with the measure which will boost digital financial transactions, have raised concerns that the waiver would be a blow to branchless banking players such as JazzCash and EasyPaisa that rely on IBFTs as a major component of their revenue, and that the arrangement should have been different for these companies. In conversation with Profit, various sources said that large commercial banks have alternative avenues of making money and IBFTs are not a large component of their income, therefore, the measure is not going to affect them much. Whereas EasyPaisa and JazzCash, which had even earlier been lobbying to restore the IBFT charges when the waiver was initially announced in March last year, would not even be able to recover their operational costs if the IBFTs are free for their customers. According to a source in the industry, branchless banking companies are agents of financial inclusion and their services have enabled low-income people to become part of the formal financial system. If these companies are not able to recover their operational costs for providing these services, it could lead to financial exclusion in the country. According to data perused by Profit, EasyPaisa charges from
Rs35 to Rs350 as IBFT service fee on amounts ranging from Re1 to Rs25,000 pre-pandemic. For amounts up to Rs50,000, charges could go as high as Rs500. Likewise, JazzCash charged as much as Rs200 for amounts up to Rs25,000 as IBFT fee from mobile wallets, whereas for amounts exceeding Rs25,000 up to Rs50,000 would be charged as much as Rs500 for a single transfer. Transactions up to Rs25,000 are now free, whereas ones exceeding Rs25,000 and going up to Rs50,000 would be capped at Rs200 would cause a decrease of 60 per cent for these companies. Further perusal of financial statements of Telenor Bank, the microfinance bank behind EasyPaisa, reveals that close to 50 per cent of the income of the bank, more than 50 per cent for a few years, has come from fees, commission, and brokerage income. For instance, for the year 2020, the bank made Rs6.3 billion under the head of fee, commission, and brokerage income, compared to Rs5.9 billion earned as interest income. For the year 2019, the fee and commission income were Rs8.2 billion against Rs9.2 billion in interest income. For both these years, Telenor Bank ran losses in billions of rupees. The bulk of their income comes from fees and commissions validates that a decrease in IBFT fees will hit the non-interest income segment of these banks. As Mudassar Aqil, the CEO of Telenor Bank and EasyPaisa, told Profit in a statement, that Telenor Microfinance Bank (Easypaisa) waived all inter-bank funds transfer charges at an approximate cost of Rs1.6 billion, between April to September, 2020. “However, the growth that our Bank witnessed during
this time was phenomenal as we recorded an increase of 184 per cent in bank transfers via Easypaisa,” he further says. On a question how did the bank benefit from the growth when the charges were waived and the bank acknowledged a loss, Aqil said, “We are on a mission to transform Pakistan into a cashless society. Although free IBFTs had an associated cost, it positively impacted the digital payments space as a whole.” Nonetheless, Aqil said that the bank supported the new fee structure announced by the SBP. “It is much needed for helping towards the sustainability of IBFT and other associated transaction costs which is essential for documentation of our economy. We look forward to working closely with the SBP towards promotion of digital payments and financial inclusion in Pakistan.” Aamir Ibrahim, CEO at Jazz, said, “We appreciate the steps SBP is taking to increase digital payments and financial inclusion. We are committed to achieving SBP’s goal but in the process, we need to ensure that the financial viability of the key players is not compromised. Success means a win-win situation for all the parties.” According to a source in the industry, to recover their cost, these companies might resort to charging a fee for each cash-in at a branchless banking agent and that is going to hurt cash to digital conversion. “There is a serious problem for JazzCash and EasyPaisa and financial inclusion could be disincentivized if they start telling people that they would have to pay to deposit their funds and get access to digital financial services, which is contradictory to digital financial inclusion.” Consequently, it is going to trickle down and the fintech companies that are building use cases to promote digital financial inclusion will be in a fix because these companies rely on the agent network of JazzCash and EasyPaisa for cash-in services. “If this happens, it can topple the entire digital financial services landscape,” the source added. n
BANKING
22
COVER STORY
S
By Farooq Tirmizi
ome time within the next two years – and quite possibly by the end of this year – something extraordinary will happen in Pakistan’s pharmaceutical industry: the largest pharmaceutical company by revenue will be a local one, rather than the subsidiary of a foreign multinational corporation. This may be the first time in Pakistani history that this has happened. As of the end of calendar year 2020, the largest pharmaceutical company in Pakistan is GlaxoSmithKline Pakistan, the local subsidiary of the UK-based global giant, with Rs34.4 billion in local revenues. The second largest is Getz Pharma, owned and operated by CEO Khalid Mahmood, is a local company that manufactures mostly generic drugs, with Rs32.2 billion in local revenue, according to data from IQVIA, the global pharmaceutical data provider. While GSK is currently bigger than Getz, the latter is growing significantly faster, with 2020 revenue growth numbers clocking in at 6.4% for GSK and 14.0% for Getz. In other words, the local company is rapidly gaining on the global giant and may soon overtake it in aggregate local market share. (The global parent of GSK will likely remain the largest player overall in Pakistan, owing to the fact that it operates a second subsidiary in the country called GSK Consumer Health.) This story, however, is not about Getz versus GSK. It is about the broader trend that is taking place in Pakistan where the local pharmaceutical industry is growing faster than their foreign counterparts operating in the Pakistani market. This is despite the fact that the foreign pharmaceutical giants that have Pakistani subsidiaries have – at least in theory – access to far more innovative and new products than the largely generic products sold by the local companies.
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But the data tells an unmistakable story: if you bifurcate the Pakistani pharmaceutical industry into local versus foreign players (as IQVIA does in its data sets), one gets a very clear picture: between 2016 and 2020, the aggregate industry grew its revenues by an average of 11.5% per year to reach Rs501 billion for the financial year ending December 31, 2020. But during that period, the local industry averaged 12.4% growth per year, whereas the foreign companies averaged 9.6% per year. How have the local companies done this? What are they able to navigate better than the foreign companies? And how stable is the advantage of the local companies? But first, a brief introduction to the industry in Pakistan.
Industry structure
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here are 775 pharmaceutical manufacturers in the country. However, of those, the top 15 have an approximately 59% combined market share and the top 100 command close to a 97% share of the total revenue of the industry. In terms of market share, the local companies have about 68.8% of the industry’s revenues, whereas the foreign companies have approximately 31.2%. That is down slightly from the 33.3% that they used to command in 2016. While the largest pharmaceutical company in Pakistan is GlaxoSmithKline, the country also has a local presence of some of the biggest names in pharmaceuticals: Abbott, Sanofi-Aventis, Pfizer, Novartis, etc. all have a presence in Pakistan, and often quite substantial ones at that. The local companies include names like Getz Pharma, The Searle Company, Martin Dow, Hilton Pharma, etc. The overwhelming majority of these, even the largest ones, are generic drug manufacturers with very little by way of local research and development capabilities, though some of these companies do participate in global drug trials for products developed by global pharmaceutical giants.
The drug pricing problem
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he single most important thing to understand about the pharmaceutical industry is the fact that the government sets its prices, and decides how much they can increase their prices by each year. The entire pharmaceutical industry in Pakistan is regulated by the government under a legislative framework first created by the 1966 Drug Act, which also created the Drug Regulatory Authority of Pakistan (DRAP). DRAP has introduced pricing policies first in 2015 and then in 2018 that were designed to ensure that pharmaceutical companies are able to continue to make profits on their products while also not increasing the prices too much for the public. Coming as it did after a 15-year effective moratorium on drug price increases, that change was considered welcome by the industry. But the structural problem is this: the government sets both the retail price as well as the retailers’ margins, which effectively means that gross profit margins for the entire industry are set by regulatory fiat. The manufacturer is able to receive a price between 20% and 25% below the retail price, which means that the entire supply chain operates on margins contained in that 25% margin. This gets us into an age-old debate when it comes to drug prices. Pharmaceutical companies argue that they need both patent protection for the newly researched drugs that they have produced, as well as the ability to charge whatever prices they deem fit in order to be able to cover the cost of the research and development that goes into producing new and innovative therapies. Critics of the pharmaceutical industry – at least the ones that know what they are talking about – that pharmaceutical products are not like other products where a consumer has many other choices, including the ability to choose not to buy the product. A life-saving product is something that the person who needs it values very highly and would be willing to pay even extortionate levels of prices to secure access to something that will keep them alive. But it is in society’s interest that as many people as possible have access to the healthcare products they need, and hence they advocate for price controls. The approach advocated by the pharmaceutical companies is one adopted pretty much only by the United States. Virtually every other country in the world has some form of price controls over and above any public health insurance program they may have. That means that most countries not only offer free or highly subsidized healthcare to their citizens, they also force the pharmaceutical companies to charge prices determined by government bureaucrats, and not the market.
In effect, this means that the large multinational pharmaceutical companies – whether they be American or European – make their money in the United States to help pay for the research and development activities they conduct for breakthrough therapies. The United States is subsidizing the development of advanced treatment for the whole world. (That, by the way, is why the US government did not even blink before making sure that the US had adequate vaccine supplies first, before then allowing them to be shipped to other parts of the world. If they pay for the development, they feel like they deserve access before anyone else.) Why is all of this relevant to the Pakistani pharmaceutical sector? Because it illustrates the kind of market environment the multinational companies face globally, and it affects the choices they make locally. Pakistan is like almost every other country in the world in that it has government-mandated price controls for pharmaceutical products. And the government not only mandates the initial price, it mandates just how much they can go up each year, and how much each participant in the supply chain is allowed to keep as their profit margin. All of that means that, even though healthcare spending in Pakistan is going up substantially – and Pakistan is undergoing a revolution with respect to increased public financing of healthcare – the market is not one where the global pharmaceutical companies see big profits for themselves. It does not help that Pakistan is right next to India, which is both a much larger market, and also a much more important component of the global pharmaceutical supply chain.
Price versus volume
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f you are in a business where you cannot increase your prices by as much as you would like, the best way to improve profits would then be to increase volumes,
and hope that scale allows your business to squeeze out higher margins, in addition to higher overall cash flow. It appears that the local pharmaceutical companies have understood this, whereas the foreign ones appear to still be reliant largely on price increases. Break out the growth rates of both the local and foreign pharmaceutical companies into their components and you can see a fascinating pattern. That 12.4% revenue growth rate for local pharmaceutical companies is split almost exactly evenly between price increases (6.2% per year on average between 2016 and 2020) and volume growth (5.8% per year). For the foreign pharmaceutical companies, the numbers are very lopsided: that 9.6% per year average growth rate is 8.5% price increases and only 1.1% volume increases. Simply put, the local companies are growing their topline by selling more products and accepting the fact that they will not be able to substantially increase prices. The for-
eign companies are reliant almost entirely on price increases, even though they theoretically have far more new products that they could be offering in the market that could increase their volume growth. How did we arrive at this breakdown? We used IQVIA data on both total revenue and total volume, divided the former with the latter, and arrived at the weighted averaged ‘price’ per product that both categories of pharmaceutical companies are selling. The actual level itself is less relevant than how the two different categories of pharmaceutical companies fare relative to each other and relative to their own past data. The weighted average prices of local products have grown at a significantly slower rate than those of the foreign products. Given the fact that both sets of companies face the exact same drug pricing regulatory regime, the reason why the local companies have seen the weighted average prices of their products go up slower than their foreign counterparts is most likely due to their introduction of lower priced products into their mix. We specify this because it is easy to spin conspiracy theories about foreign companies being able to engage in price gouging, when the reality is that their prices are just as much determined by the government as that of local companies. Nobody is particularly happy with the prices the government gives them.
The local-foreign partnerships
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o how have the local companies managed to increase their volumes if the new products are mostly controlled by foreign companies? After all, if you are a generic drug manufacturer, you have to rely on the patent expiring before you can start manufacturing new products.
COVER STORY
There is certainly at least some of that. As patents expire in the United States, Pakistani generic drug manufacturers are free to begin producing those and offering them to local consumers are relatively affordable prices. But at least a significant part of the new products being offered by local drug manufacturers are in partnership with innovative pharmaceutical companies in the United States that have no wholly owned subsidiary in Pakistan. For instance, in 2014, Gilead Sciences – the US-based pharmaceutical giant – announced a partnership with Ferozsons Laboratories for the manufacturing of Sovaldi and Harvoni, two drugs that can cure hepatitis C, a disease that was previously thought of as a chronic condition that could only be managed, but not cured. In 2020, at least three Pakistani companies – Horizon Pharma, Bio Labs, and Ferozsons – were able to begin manufacturing remdesivir, a broad-spectrum antiviral medication developed by Gilead Sciences and found to be somewhat effective in the treatment of Covid-19. And Pakistan was part of the global drug trial network for the Covid-19 vaccines developed by pharmaceutical companies based in other parts of the world. Indeed, of the top 10 new products introduced into the Pakistani market last year, only one was introduced by a foreign pharmaceutical company. The rest were all introduced by Pakistani companies, and most were either in partnership with companies based abroad, or were generic versions of drugs whose patents
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have expired.
How sustainable is the local advantage?
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hile the local companies have done well in terms of being able to grow their toplines, particularly relative to their foreign counterparts, you will have noticed something: they are reliant entirely on research and development of drugs done elsewhere, usually in the United States and Europe, and occasionally in other parts of the world. Either they are introducing generic versions of drugs that have lost their patents, or they are entering into partnerships with companies like Gilead, which are based in
the United States and conduct most of their research there, and occasionally share it with manufacturers in countries like Pakistan. At no point are Pakistani drug companies developing innovative new products that they conducted the research to develop themselves. This, obviously, is not entirely their fault. The pricing policies introduced by DRAP – the original 1966 law, as well as the 2015 and 2018 regulations – effectively assume that the vast majority of research and development will not be done inside Pakistan and hence barely even address the possibility of how to price an innovative product. What that means is that if the foreign manufacturers decided one day to start importing or manufacturing more of their innovative products in Pakistan, the growth spurt that the local generic manufacturers have been able to experience over the past five years is likely to be replaced by an increase in the market share of the foreign players. So why does that not happen? The reasons for this are complex and have to do with the production supply chain in Pakistan and the fact that a significant proportion of the world’s most complex precursor ingredients for pharmaceutical products are manufactured in India and are difficult, if not impossible, to import into Pakistan. Why would any global pharmaceutical company invest in manufacturing complex ingredients in Pakistan? It does not have a large enough market to justify the high investments needed to make those ingredients for domestic consumption alone, and why would you set up export capacity in Pakistan when India is right next door and it is will cost just as much (and perhaps slightly more) to ship goods from Pakistan than it would from India? Well, could the government decide to allow multinationals to import more from India, but that would run into two problems. First, the local companies would complain since it would diminish their cost advantages. After
all, if the Indian generic manufacturers can export their products to Pakistan, the Pakistani generic manufacturers would likely face difficulty in maintaining their market share of their own market. And the second biggest factor, of course, is the fact that this is something that directly pits the welfare of Pakistani citizens against our misplaced sense of ‘national pride’ against India. When, exactly, in our history, have we ever chosen the former over the latter?
Is pharma’s dominance of healthcare itself under threat?
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harmaceutical drugs account for approximately 62% of total healthcare spending in Pakistan, based on Profit’s analysis of data from the Pakistan Bureau of Statistics. Needless to say, that makes it the single most important component of Pakistan’s healthcare sector. But with the advent of the Sehat Insaf card, which provides government-subsidised health insurance to the poorest Pakistanis, that may change. See, the reason why pharmaceuticals are such a large part of the healthcare spending in Pakistan has to do with the fact that most Pakistanis cannot afford much else. Drugs are cheap, and readily available. And while laws exist to not allow the use of prescription drugs without a valid medical prescription, those laws are too often flouted by pharmacists. Going to see a doctor or, more expensive still, getting a surgery are far more expensive propositions. Of course, a pill is not a substitute for a surgery in most cases, but when you cannot afford the surgery, you have to make do with the pill. That, however, is about to change. The government’s health insurance scheme means that the poorest of Pakistanis will be able to walk into the most expensive of hospitals and get medical treatment that they need, paid for by a government insurance program up to quite generous limits. The Sehat Insaf program will cover up Rs600,000 per year per family (Rs300,000 defined as ‘initial coverage’ and another Rs300,000 as ‘additional coverage’) for highcost hospital procedures, and up to Rs120,000 per family per year for other types of hospital-based healthcare coverage. These amounts may not be sufficient for the most expensive hospitals or the most expensive diseases, but they are a lot more money than what most low-income people currently have access to. And instead of begging their employers for help, they now have access to a government program that gives them similar access to healthcare services. Given the fact that the prices of inpatient
and outpatient hospital services have been reduced by government subsidy, demand for such services will increase markedly, meaning the growth segment in Pakistani healthcare will become hospitals, not pharmaceuticals. Of course, this does not mean that drugs will not continue to grow, and indeed, some of the biggest users of drugs are hospitals themselves. But it does mean that the nature and composition of care availed by the average Pakistani is about to change in a material way, and the drug companies should expect that they will not be on the winning
end of that shift. It is likely, however, that the drug companies themselves would welcome such a shift. They have been the crutch used by the Pakistani public for a long time, and as a result, their pricing policies get extra scrutiny from the government. As other areas of healthcare get more prominence, perhaps the regulatory pressures on pharmaceutical companies will diminish, allowing them indirect growth opportunities that are currently closed off. Losing the top position, in the end, may not be such a bad thing after all. n
COVER STORY
OPINION
Ali Abbas Sabir
The whitespace in the $2 billion advertising industry of Pakistan The urge to create relatively demanded goods along with services is the most challenging task out there
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akistan is ranked as the 6th largest country in the world, and is one of the fastest growing economies in the South Asian region. This is mostly because of the fact that Pakistan’s internet penetration is only slightly higher than that of many of its neighbors. Behind these positive numbers has been the success of mobile internet, and how quickly the proliferation of 3G and 4G internet connections has taken place in recent years. While Pakistan was late to the mobile internet party, people are catching on quickly now that it has been here for a while. It is also precisely because of this that the business-to-business (B2B) market has seen great growth in recent years. The importance of B2B clients for businesses may be understood from the fact that the B2B market is roughly four times the
Ali Abbas Sabir is a former research fellow at the Centre for Security, Strategy, and Policy Research at the University of Lahore. He can be reached at aasad6889@gmail.com
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While cookies cannot dig up, study, or search the computer for personal information, they genuinely keep personal data in at least 2 directions: form data and ad tracking. This personal information is produced by the user’s own input into websites’ order forms, registration pages, payment pages, and other online forms, not by the cookies themselves
size of the B2B industry, with a global B2B e-commerce market size of $12.2 trillion in 2019. Businesses have begun to employ social media for marketing purposes to attract more customers and consumers to their doorstep. This was done through various digital marketing ad campaigns on social media platforms. With the usage of technology and online media growing in numbers and scale in recent years, Pakistan has been able to create a growth-oriented, dynamic, digital, society. Since the turn of the century, Pakistan’s mobile market has grown at a rapid pace. Yet, the pervasiveness and mass consumption of modern technology, as well as the accompanying digital services, is yet to completely materialize. It is a basic principle that advertisement expenditure follows any gains or dips in GDP. Over the last decade, the advertising sector grew at a pace of 3-6 percent each year, reaching $646 billion USD in 2019. Prior to the outbreak of the COVID-19, the ad industry was expected to increase to $865 billion USD by 2024. In response to changes in customer behavior, advertising expenditures have shifted. Splurging on publications that have no viewership is basically squandering money compared to marketing. When protective measures were implemented all throughout the world in the name of innovation (COVID-19), out-of-home and cinema advertising, as well as print advertising, fell virtually immediately. The accompanying consumers have reacted to marketers around the country, demonstrating that advertising sales are now a top priority. That digital atmosphere is conducive to “direct response” marketing, which encourages clients to make quick
purchases, making it an intriguing proposition for businesses looking to boost sales on a low budget. The urge of creating relatively demanded goods along with services is the most challenging task out there nowadays. Many businesses face this problem as the demand is to identify potential prospects based on their first behavior and then nurturing them in a way that the sales team may get elevated, highly qualified prospects. However, demand generation marketing and lead generation have a lot in common, except that demand generation marketing takes time. It comprises everything your trademark does to build buzz, awareness, and recognition across various touchpoints, campaigns, and pieces of content. The vast majority of open internet users are free to browse the web and consume material. The user’s information, such as what they watch, read, purchase, or put on a wish list, is collected and then utilized to promote items to them. This is the difference in value between the supply and demand sides of the open internet.
Understanding the working of cookies
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argeting and advertising cookies are meant to collect information from you on your device so that you may see adverts based on themes that are relevant to you. Advertisers will set these cookies on the website with the approval of the website operator. The information that cookies collect about you can be shared with other marketers to help them assess the effectiveness of their ads. Another aim of targeting and advertising the cookies is to create user profiles from website visitors in order to collect information on the performance of adverts that may appear on many websites. Third-party cookies are nearly always used. Advertising that is effective reaches out to potential consumers and tells them about products or services. It ideally attracts the attention of potential consumers and convinces them to utilize the goods. Regardless of the manner, all of the advertising should be clear and consistent in expressing the company’s distinct positioning statement.
Are cookies a threat to privacy?
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hile cookies cannot dig up, study, or search the computer for personal information, they genuinely keep personal data in at least 2 directions: form data and ad tracking. This personal information is produced by the user’s own input into websites’
The accompanying consumers have reacted to marketers around the country, demonstrating that advertising sales are now a top priority. That digital atmosphere is conducive to “direct response” marketing, which encourages clients to make quick purchases, making it an intriguing proposition for businesses looking to boost sales on a low budget order forms, registration pages, payment pages, and other online forms, not by the cookies themselves. This information is frequently utilized for e-commerce. It is commonly encoded and secured from remote server hacking using security features such as Secure Sockets Layers (SSL) certified websites and other network security techniques. Where do we stand now? It is all up to consumers whether the person wants to be in flocks of sheep or a lone survivor.
The role of the $2 billion advertising in Pakistan
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ustomers and companies benefit from targeted marketing. It helps a brand define itself, stand out, and have a stronger effect through improving product development and operations. But there is one thing advertisers need before they get started with target marketing. The most effective target marketing strategies begin with the creation of a clear and complete
buyer persona. A buyer persona is a fictitious figure that represents the ideal client. It’s a thorough description of a person in the target audience’s characteristics, qualities, and habits. Relying on the big giants out there is an option for marketers but how long will it take for the industry to come for its own creative ways to indulge the community out there. Well, the very foremost way is to launch a completely independent browser which should ensure user privacy. And data integration should be visible as what audiences tend to see, they do see. All the big advertising companies out on the roll and hunt should completely launch a platform and through some promotions, they should collect the data of their consumers for direct marketing which is the key to success. To sum up, Pakistan may not be at the forefront of the internet advertising market right now. However, given the government’s attempts to move towards a digital future, one may anticipate a day not far off when e-commerce will be considerably more valued than conventional trade. n
COMMENT
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e know Pakistan is part of the global south, a developing country, as it were. Andt yet at times, some facts are so astonishing, that they really hit you right in the face with just how ‘developing’ we really are. Take, for instance, soft drinks. The consumer item has been available in Pakistan in glass bottles since at least the 1950s. In the 1970s, imports of soft drinks in aluminum cans became available in Pakistan. Then, in 1990, companies set up factories in Pakistan that did the actual process of filling aluminium cans with soft drinks. But what of the aluminum can itself? This is the hilarious part: the first local production of aluminium cans only began in 2017 - a full 60 years after soft drinks were first marketed in Pakistan. That is how long it took someone to have the bright idea of manufacturing cans locally. This, we might add, is despite the fact that Pakistan’s largest can company, the Hashmi Can Company, had been in operation since before partition. In their more than half a century in business, they never once thought to expand out of tin cans and move to aluminum cans - considering most can manufacturers do produce both. In the long run, however, that is paying off. Just three years later, the brand new Pakistan Aluminium Beverage Cans Ltd (PABC) is going for an initial public offer (IPO) on the Pakistan Stock Exchange. The company
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is planning on raising at least Rs3.3 billion by offering a 26% stake to institutional and ordinary investors. Book building will take place on June 22 and 23, followed by public subscription on June 29 and 30. The entire offer of 93.8 million ordinary shares, or 26% of the post-IPO shareholding, will be offered through the book-building process at a floor price of Rs35 per share. Successful bidders will be provisionally allotted only 75% of the issue size and the remaining shares will be offered to the retail investors at the strike price. That means PABC will raise at least Rs3.3 billion in the IPO. Based on interest from investors during the book building process, the company said the strike price could rise by 40% (Rs49 a share), which would raise at least Rs4.6 billion. So, who is behind PABC? Ashmore Mauritius PABC Ltd, a specialist emerging markets investment manager based in Mauri-
tius, currently holds 51% shareholding in the company. That is affiliated with the United Kingdom based private equity firm Ashmore Fund, which started PABC with an initial investment of $70 million. Liberty Group, which is involved in the textile and power sectors, owns the remaining 49% stake. That group is owned by Karachi-based businessman Muhammad Salim Mukaty and his family. The name may sound familiar: the Pakistani government named and sent notices to the family over their shell company Mukaty Holdings Ltd., under the ‘Bahamas Leaks’ of 2016, which was an investigation of 175,000 companies registered in the caribbean islands between 1990 and 2016 (typically rich people used international tax havens to hide wealth). Turns out, 144 Pakistani business executives owned 68 such companies in the Bahamas. That blip notwithstanding, with the exit of Ashmore post-IPO, Liberty Group,
In the long run, however, that is paying off. Just three years later, the brand new Pakistan Aluminium Beverage Cans Ltd (PABC) is going for an initial public offer (IPO) on the Pakistan Stock Exchange
the general public and Soorty Enterprises (another Karachi-based business group) will own 54%, 26% and 20% shareholding in the company. The company began operations in 2017 as the country’s only local manufacturer of aluminum beverage cans. Until then, bottlers in Pakistan and Afghanistan relied on expensive imports to package their beverages in environment-friendly aluminum cans. PABC supplies to the bottlers of all major carbonated drinks, including PepsiCo and Coca-Cola, in both Pakistan and Afghanistan. Exports to Afghanistan constituted 35% of the company’s sales in calendar year 2020. Established on a 20.9-acre piece of land in Faisalabad’s Special Economic Zone, PABC has a current rated capacity of 700 million cans per annum. The company is increasing its rated capacity by almost 36% to 950 million cans per annum by July next year.
It has grown its revenue at an annualised rate of 18.7% in the last five years. In the third full year of its operation (2020), the company’s net profit amounted to Rs610.7 million, up 314% from 2019. It expects its bottom line to grow at 140% in 2021. The company was significantly helped by strategic lobbying on its part. For instance, in 2017, Pakistan imposed a 20% regulatory duty on the import of aluminium tin cans from Sri Lanka despite a Free Trade Agreement with it, apparently to protect PABC. As per sources, the former Chairman FBR, Abdullah Yousaf, who had begun working for PABC played an instrumental role in successfully lobbying for this protection for his new employers. No matter that no cans were being imported from Sri Lanka yet: the idea was to cover all bases and potential threats, just in case. As the company’s own press release
notes: “Growing can penetration may increase their sales to 650 million cans by 2025, delivering an annualised growth rate of 19 per year. PABC will be its key beneficiary as can imports are virtually non-existent due to high freight costs and duties.” Yes, but who imposed those duties? Still, the lobbying will be worth it. After all, Euromonitor International puts the size of Pakistan’s soft drinks market at 3.8 billion litres per annum. It expects the market to grow at a five-year annualised rate of 7% to reach 5.3 billion litres in 2025 on the back of rising purchasing power, urbanisation and favorable demographics. With the estimated market size of 275 million cans, aluminium beverage cans in Pakistan account for only 3.6% of total soft drinks sales as opposed to the global average of 19%. Indeed, the surprise is in that it took so long for a company like PABC to come along. n
BEVERAGES
OPINION
Ahsan Manzoor
Other People’s Money, the best kind of money Sitting on other people’s money till next Monday can net you a tidy sum. That can be good and bad
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elling lots of coffee was all well and good for Starbucks. But the Seattle-based coffeehouse chain seems to have figured out a way to leverage its customers’ sheer loyalty into getting even more profit. You see, lots of Americans go to a Starbucks on their way to work every single day. For them, instead of paying by cash, or a point of sale card transaction or even a general fintech app, it made more sense to use Starbuck’s own app. Or their gift cards. Afterall, the company was giving far more rewards on their app and gift cards. (Two redeemable ‘stars’ for every dollar spent as opposed to the one that they would get otherwise.) Earlier this year, it was revealed that Starbucks customers’ prepaid balances (unused account balances sitting on either digital or physical gift cards) amounted to just over $1.4 billion! Let that sink in. In effect, Starbucks has gotten, from its eager customers, a loan. An interest-free loan.
Ahsan Manzoor is a career banker who tweets at @ahsanmanzoor83
As financial journalist and investor Neil Patel writes, “Think about that for a second. Consumers love Starbucks so much that they’re willing to make a deposit to redeem coffee at an unknown future date and time. Starbucks is essentially gaining access to an interest-free line of credit, one that equates to roughly 4% of the company’s total liabilities. Whereas a traditional bank is severely restricted on the actions it can take using customer deposits, Starbucks has more leeway; it can reinvest directly back into the business on expansion opportunities. The company’s free cash flow is also enhanced, as this phenomenon decreases working capital needs.” What makes Starbucks’ situation so great for them is the fact that though they have to ‘return’ this money, it is in the form of coffee that they are going to be selling at a huge profit margin anyway. And that’s not counting those dollars that will lapse. A significant portion of the deposits end up going unused. These, the company calls ‘breakage.’
Here, there, everywhere
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he Starbucks case of being flush with someone else’s cash (at no cost of funds, even if, for a smaller window of time) isn’t alien to us here in Pakistan. Consider the auto sector. Because of the bizarre way our ever-spoilt auto sector works, you pay up for your car but don’t get it till months later. If you want to get it then and there, you have to pay a third-party investor a premium for it. This strange situation has been normalised in the customers’ minds to the extent that even the vernacular has changed around it. The word khareedna (bought) is used only for second-hand cars; for brand new cars, it is nikalwaana (got it out.) At any given point in time, the auto sector’s Big Three would have hundreds of millions of dollars of their customers. Customers who are months away from even seeing their cars. Again, an absolutely zero interest rate loan. But it’s not just the big corporates that are in on this racket. You might have noticed some schools sending O and A levels registration forms to their respective examination boards much before the deadline. With enough students, that’s no small change that these schools are sitting on for several months.
So what do they do with this money?
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ell, if they want a no-headache approach, all they have to do is walk over to the bank and put in a term deposit. Term deposits of less than a year are technically called Short Term Deposits but people don’t generally know that the term can be as short as a week.
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Let us consider an example. Say you are sitting on Rs 10 crores (100 million) that you have to return at the end of the month. Consider that the bank is giving you a return of 7 percent per annum. That means by the end of the month, you can take your money out and pocket a Rs 6 lakh difference. If you had to return the amount at the end of a week, you will get one-and-a-half lakhs. If you are willing to take a slight risk (bank term deposits aren’t risky; the State Bank sees to that) and want to invest in mutual funds, the returns are even better. Mutual funds getting you a 10 percent annual interest is pretty common these days. The 10 crores from the example above will yield you Rs 8.5 lakhs after a month and 2 lakhs, 10 thousand after just a week. Mutual funds aren’t too big of a risk either, but since it is other people’s money we are talking about, it is prudent to mention that there is at least some risk involved.
Umm...and this is bad because…?
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one of this is bad, actually. In fact, parking temporarily parked excess liquidity in a profit-yielding account is not the rule, not the
exception. Modern day CFOs and finance managers are expected to make optimal utilisation of such capital. And it’s good for the financial
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The Starbucks case of being flush with someone else’s cash (at no cost of funds, even if, for a smaller window of time) isn’t alien to us here in Pakistan. Consider the auto sector. Because of the bizarre way our ever-spoilt auto sector works, you pay up for your car but don’t get it till months later capital markets as well, for this money to be in circulation. For the banks to always have lots of cash at hand. In fact, the Supreme Court of Pakistan, never a forum associated with a penchant for financial acrobatics, chastised the concerned department when it was revealed that the funds collected in former Chief Justice Saqib Nisar’s Diamer-Bhasa Dam Fund had been kept in a dormant account. How much money had been lost in terms of opportunity costs when this Rs 10.6 billion sum was not kept in an interest-yielding account, the court asked.
No to free lunches, though
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he problem arises, however, when we acknowledge the fact that not all such situations are the same. In the case of Starbucks, the consumers willingly gave their money to a company for deferred consumption of a partic-
ular product. And by doing so, they even got better deals. That is not what happens in all such cases. Let us assume there is a cartel. We’re not talking about the Pakistani auto sector. We’re not. *cough *cough. Let us assume that this cartel has decided that they will give all products on a deferred basis. Because everyone within this oligopoly is in on it, the sales aren’t affected and the three companies are flush with cash. They make lots of money off this cash and the end customer doesn’t see a dime of this. We have both the Competition Commission of Pakistan and the Consumer Rights Protection Commission of Pakistan. This sort of stuff is right up their alley to investigate. Remember the old adage, which one sees in the initial chapter of microeconomics textbooks every now and then: “There is no such thing as a free lunch.” For the consumers’ sake, let us keep it that way. n
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