CONTENTS
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10 ‘Black’ markets and google docs this week in Pakistan’s business and economics twitterverse 14 The extraordinary TRG EGM saga
18 18 Can Pakistan afford to build its tourism industry? 25 Cnergyico leaps ahead of Shell and Total to become largest private-sector fuel retailer 26 The paradox of gas prices Ammar H Khan
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28 Do not ban crypto Uzair Younas 29 The mini budget is the price of failure 30 When the President cracked a billion rupee gag
Profit
32 Are Pakistanis willing to rent their shaadi clothes?
Publishing Editor: Babar Nizami l Editor: Khurram Husain lJoint Editor: Yousaf Nizami l Assistant Editor: Abdullah Niazi Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan l Meiryum Ali l Shahab Omer Chief of Staff & Product Manager: Muhammad Faran Bukhari Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Malik Israr (Isl) Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk
Editorial Minibudget and SBP bills Given all the triumphant rhetoric we have been hearing from the government since this fiscal year began about how successful their revenue collection has been, it is puzzling to see them go to such extraordinary lengths to get the finance bill passed, doing away with a raft of tax exemptions who impact will hit the poor the hardest, despite the claims of the finance minister. And somebody needs to ask the State Bank Governor what the circumstances were that called for him to require such extraordinary powers of autonomy in the first place. Did he come under pressure to accommodate government demands for negative real interests against his best counsel? Were there any serious constraints or limitations to him being able to discharge his responsibilities as Governor of the State Bank that necessitated recourse to such far reaching legislation? Fact of the matter is both of these bills became necessary due to the government’s own failures. The mini budget is a testament to the government’s failure in bringing about any meaningful tax reform. Imran Khan started his term by saying tax reform will be his top priority, and seeking to revamp the institutions of state, he promised “I will begin with the FBR.” Along the way we saw a meandering path taken by his government in pursuit of this objective. His first finance minister, Asad Umar, started by creating what he called a “tax policy cell” within the FBR to drive the process of reform. This cell, like so many others before it, turned out to be a damp squib. Nobody can find a single output it produced that had any meaningful impact on the quality of state’s revenue effort. Khan’s next move was to bring in Shabbar Zaidi, the outspoke Chartered Accountant, who launched a manual documentation drive by serving thousands of tax notices on parties that were recognized as businesses but were not filing any returns, particularly from the trader community. That effort fizzled out as the government buckled under the threat of strikes announced by trader bodies, and weeks later Zaidi quietly resigned and left. Then we had the launch of the country’s largest and longest running amnesty scheme, which pulled away from the documentation objective altogether. His third finance minister, Shaukat Tarin,
entered his usual tough talk about ramping up revenues through “point of sale machines” installed at retail outlets. He told us he will renegotiate the IMF program signed by his predecessor, and tell them that he will fetch the revenues they are asking for without burdening the populace any further. For a few months the FBR posted rising revenue collections, but they were almost entirely due to the rising pace of imports rather than any broadening of the tax net. For a while he seemed to be delivering, as tax collection posted a 26.7pc increase in the first quarter of the fiscal year. But none of this came from broadening the tax net or any other reform. It was mostly quantitative growth from rising imports, and as such was not going to suffice to meet the revenue requirements looming before the government. Along the way we saw hundreds of billions of rupees spent via massive government inducements to the bloated textile exporters of the country. All these efforts failed, and the biggest proof of this failure is the mini budget itself. And the failure had a cost. Hundreds of billions showered on the rich in a vain effort to spur growth in the country now have to be recovered from the poor in the form of taxes on essential items like bread and medicines. Mr Tarin’s assurances that the burden of these measures will not hit the poor ring hollow. How can it not, considering prices of essential items will rise? The State Bank was used generously by the government to support its push to kick start growth. And this is the reason why the IMF is now insisting that the power with which the government bullied and cajoled the State Bank into supporting its unsustainable growth push be withdrawn altogether. Public debt rose sharply during this period, as did the real money supply and the current account deficit. These were the costs of pushing growth by excessive stimulus. The result was exchange rate depreciation and inflation. And now the State Bank has to be surrendered by the government if they want the IMFs stamp of approval for their policy framework going forward. If you cannot show the maturity needed for responsible exercise of power, those powers will be taken away from you.
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Readers Say The tax arbitrage needs to stop. A good coverage of the issue by @AribaShahid. Apropos; Chinese petrol drive OMC profits @AliKhizar, Twitter
schedule 100% concession is given). This issue should be brought up in regards to any FTA with China. Apropos; Chinese petrol drive OMC profits @mahmoodtariq513, Twitter
I guess China gets cheap oil through Iran, passed through UAE and Oman, and a surplus quota is defined for r- export. China has no questions asked policy on this with Iran. Certificate of origin of China can only be issued on product refined based indigenous crude. Crude picked by China through Iran is used for internal demand. Apropos; Chinese petrol drive OMC profits @AneelIqbal_, Twitter
I don't know why they are writing the OCAC about it when this data is available with government authorities already. The data makes it very clear which OMC imported how much. PSO also imported Petrol from China. Also, did some numbers and turns out, private OMCs actually paid a higher rate under FTA??? Only PSO was the closest, which too is strange?? Rate under FTA should be lower. This does not make sense. Either my source has ripped me or I am clearly missing something. Apropos; Chinese petrol drive OMC profits @sharookh, Twitter
Refined Petroleum is India’s biggest export too. Massive, modern refinery complexes serving the local demand and the exporting excess. Also, since India and China have very little crude reserves compared to their need, the Forex spending is offset by the earnings. In India, Mineral products (Refined Petroleum and Diamonds) export earnings are nearly equal to the cost of Crude imports. Apropos; Chinese petrol drive OMC profits @theLahoreWala, Twitter If Pakistani traders and companies are not complaining about our free trade agreement with China, then why is there so much resistance to the idea of a free trade agreement with India? It will benefit everyone. Why can we never have nice things? Apropos; Chinese petrol drive OMC profits @oozypalooza, Twitter Very interesting piece I never knew about China exporting O&G products. I can definitely see the benefit to Pakistani importers but I am failing to connect the benefit for Chinese counterparties to export, beyond diplomacy benefits when they are net importers (thin margins). Apropos; Chinese petrol drive OMC profits @Awais_Khan95, Twitter
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It doesn't but nor does the PSO procurement process. Rather the KPC deal and tendering process is unfair to other OMCs. No one can match the KPC number while the tendering process brings in products from sanctioned countries that other OMCs cannot bring in. Other than this, an FTA would also really help. Apropos; Chinese petrol drive OMC profits @mazharfakhar1, Twitter Out of total $7.9b imports around 1.34b (16%) imports are from China, however the average effective rate of duty on the said product from China is 1.35%, while all other imports are imported at 0 .025% effective duty (under 5th
So the Directorate General F&P (Oil) is using a Gmail account, which is casually being promoted officially/ on-record. Little surprise as to frequent data breaches from Pakistan's government depts. How reckless can one get? Apropos; Chinese petrol drive OMC profits @misterzedpk, Twitter I have raised this before and am making another attempt in the hopes that the government might actually take notice: 1- Why is gmail being used for official government communication? Why isn't there an official email domain setup? 2Why are the majority of government sites not SSL certified? Doesn’t cost millions! Apropos; Chinese petrol drive OMC profits @DaLondongirl, Twitter Great story by @Profitpk ! If you cannot treat your best people well like fellow owners it will always hurt you. Applicable as much to startups as to legacy businesses. Apropos: A shakeup brews in Lahore’s elite schools network @HuK06, Twitter Such a poor offering on qualitative analysis of evidence Abdullah. Please polish up your research skills. This article merely offers anything except for an indicative iteration to falsely defame. The names who are this big so you call them ‘elite’ gained this status after years of hard work and sweat. Only good journalism can help our country’s education system to lift. Please do your job well. * I wish all systems including this newbie envision to uplift education for good and not for personal ambitions and gains. Apropos: A shakeup brews in Lahore’s elite schools network Dr A Saqib, Website
COMMENTS
IN BRIEF Cnergyico Pk Ltd on Thursday announced acquiring a majority stake in Puma Energy Pakistan Pvt Ltd and is set to become the country’s second-largest fuel retailer. Puma Energy — a subsidiary of Singapore-based Puma Holdings Energy Pte Ltd — runs 542 petrol pumps and owns two storage terminals in Punjab.
TRG Pakistan, at an Extraordinary General Meeting (EoGM) held on January 11, elected a new board of directors which saw the company founder Muhammad Ziaullah Khan Chishti being ousted from the board. The meeting was held primarily to elect a new board of directors for the company.
The National Investment Trust Limited (NITL) of the government of Pakistan has also denied launching a Rs1 billion venture capital fund announced by President Arif Alvi in September last year at a tech conference arranged by PakLaunch to showcase Pakistan’s startups to investors, after a similar denial earlier by the SEC. Prices of petroleum products are likely to witness an increase of up to Rs6 per litre for the second half of January, meaning petrol will hit a rate of over Rs 150 per litre. Sources in the petroleum division said that the division has received suggestions from OGRA regarding oil prices for the remaining fifteen days of the ongoing month. All five local refineries have offered different prices for the sale of furnace oil (FO) to power plants, and the petroleum division’s directorate-general (oil) has requested the power division to take appropriate action in this regard as the supply of furnace oil to power plants remains plugged.
Healthtech startup Oladoc on Friday claimed to have raised a $1.8 million investment in a preSeries A round, as the healthtech sector sees a surge in venture funding. The round closed in the last quarter of 2021 and was led by Sarmayacar and Doha Tech Angels along with a number of angel investors. Advertisers in Pakistan spent Rs34 billion on TV advertisements compared to Rs16.8 billion on digital media in FY 2020-21, it was reported. According to the report, Pakistan’s media industry’s total ad spend increased 29 percent from Rs58.6 billion in FY 20192020 to Rs75.64 billion in 2020-21.
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‘Black’ markets and google docs
this week in Pakistan’s business and economics twitterverse
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his was a relatively slow week for us because after all of the fuss surrounding the mini budget finally subsided a little, there was time to sit back and focus on the important things. Things like google docs anxiety and finance nerds - you know, things that affect all of us. Ariba Shahid brings you all this and more in this week’s social media roundup.
Roshan Patel is right. You’ve got to be smart with your investments. Don’t invest in companies that fail. It’s that simple. On a serious note, hindsight is 20/20 vision and a good thing to have. Some even better advice would be that if you never invest at all and say vague enough things, you will always be able to say “told you so ” - whether an investment goes well or badly.
Live view of what Profit journalists feel like when they open a Google doc someone else is working on. There is no other option but to feel embarrassed and run away to Mexico and change your name.
Things are all getting in place to make Pakistan the next big thing.
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{Note from the editorial staff: On the flip side of this, when an editor is working on a document and the relevant reporter shows up on the document the performance anxiety goes through the roof. Remember, the person editing your work doesn’t really know what they’re doing either. They’re as scared, confused, overworked, and underslept as you are.}
The use of “black” economy and “black” market needs to be used carefully. Not everything is black. Sometimes it’s just hard working folk trying to get over stifling corporate bureaucracy. Foreign investors will come for Naan and keema. That’s it. That’s the tweet.
Our social media game is top tier. I hope many are able to monetize it.
Same man, same
SOCIAL MEDIA ROUNDUP
The extraordinary TRG EGM saga Zia Chishti went quietly as the EGM spelled a shakeup for TRG
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By Ariba Shahid
y all accounts this was an extraordinary board meeting. Hardly anything about it was routine. On Tuesday, January 11 shareholders of TRG Pakistan voted themselves a new board of directors and avoided what only a day earlier looked like a bruising fight. The pot of gold at the end of that rainbow was $120 million held in cash by TRGs holding company, TRG International, incorporated in Bermuda, in which its Pakistani affiliate owns 46 percent shares. TRG International owned three other companies, one of which it sold for $600 million back in July 2021, of which TRG Pakistan’s share was $120 million. Another company, Ibex Ltd, a massive company with almost 30,000 employees worldwide that provides business outsourcing services such as customer support, was listed on the Nasdaq back in August 2020 and its share price there has oscillated between $10 and $25. It currently trades around $15. The real prize, of course, is the third company called Afiniti, whose value has not yet been determined but knowledgeable sources tell Profit that it could be close to $2 billion given the company’s revenue growth. On December 10, 2021, TRG informed its shareholders that “that the TRGI Board has approved allocation of its liquid assets to its shareholders”, adding that their portion of these liquid assets”would be approximately USD 120 million” which would include around $10 million as deferred cash. In addition the liquid assets included 5.4 million shares, which at their current trading price would come to another $80 million or so. The next decision the TRG board had to take was simple. What were they going to do with this money? One option was to keep it with the parent holding company from where it could be invested in Afiniti, the up and coming star of the TRG bouquet, and used to increase the company’s total value in the long run. Another option would be to bring the money back to Pakistan and distribute it among the shareholders, an option that not many of the large shareholders were keen on given that much of the money would be lost in taxes and would do little to increase the company’s assets it distributed out. A third option was to use some of the funds to undertake a share buy back in Pakistan, consolidate the companies scattered shareholding, while using the rest for reinvestment in other TRG ventures abroad. Until recently Zia Chishti himself would have been a key player in choosing between these options. But the force of the scandal he was hit by meant people no longer wanted him associated with any of the companies he had founded. He stepped down from all of his roles in Ibex on November 18, two days after the damning testimony given by Tatiana Spottiswoode detailing sexual assault against her by Chishty. Ten days later he stepped down as CEO and Board member of TRG Pakistan, and a couple of weeks later stepped down from TRG International as well. But on January 4,
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2022, as the latest board election approached, his partners, associates, shareholders and investors were jolted to learn that he had included his name along with that of his mother and two associates in the list of people offering themselves as directors to be elected. Alarm bells rang around the TRG investing community. Had he had a change of heart? Was gearing up for a fight to regain his place in the company he had founded? “Disgraced Afiniti founder Zia Chishti plots comeback weeks after quitting over harassment claims” screamed a headline in the Telegraph published the next day. The company’s stock plummeted from a high of Rs123 on Jan 4 to Rs 99 by Jan 10, losing almost 20 percent of its value on the eve of the EOGM where investors feared a messy board battle was about to get underway. Activist investors mobilized during these days, and reports circulated in investor circles saying the $32 million foreign inflow into equities in the month of January was actually money coming from TRGs parent company to help shore up its stock price. A battle of the proxies ensued after Chishti revealed his hand and announced his intention to run in the Board elections as a director. His mother – Sadia Chishti, half-brother – George Lear, two long time associates – Jose Ignacio Guerra Holguin and Ioannis Demetriades, and himself were among the 26 contestants up for election. This showed that he indeed was plotting to rejoin. Chishti, had, however, given his proxy to his legal counsel, Mahmud Farooq through his 86.8 million shares, retaining 3 million under his own name. Other shareholders moved to form blocs of their own to bring as many of the free float shareholders under their umbrella as they could to forestall his ambition, while those still on speaking terms with the disgraced founder urged him to stand down. All the makings of a boardroom coup were now in place. The prize was control of TRG Pakistan, along with its liquid assets of almost $200 million and shareholding in a company whose valuation could well come in ten times that amount whenever it is ready for monetization. But on the day of the EOGM, a disheveled and defeated looking Chishti folded his hand without a fight. He sauntered into the meeting long after it began, wandered the hall briefly to exchange curt greetings with a few large shareholders, before walking up to the stage to sit and exchange some words with the company CEO, Hasnain Aslam. Above the two of them was the giant board projecting the video of those shareholders who had joined by video call. When votes were counted, neither Chishti nor his associates were anywhere near the top ten on the list, which could only happen if Chishti instructed his proxy to vote for his rival’s camp. Chisthi was not in the room to hear
Hasnain Aslam announce the new directors, or in other words, his defeat.
The new face of the company
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he elected members of the companies board include Khaldoon Bin Latif, Farrukh Imdad, Hasnain Aslam, Waleed Tariq Saigol, John Leone, Patrick McGinnis, Zafar Iqbal Sobani, Abid Hussain, Asad Nasir, and Suleman Lalani. They will serve for a term of three years commencing January 14, 2022. What this means is that the company has nine independent directors, including three from JS group, namely Asad Nasir, Suleman Lalani, and Abid Hussain. Khuldoon bin Latif is the CEO at Faysal Funds, an asset management company owned by Faysal Bank. Farrukh Imdad is the group head at Hamdard Pakistan and Director General at Hamdard Foundation Pakistan. Waleed Tariq Saogol is currently the Chief Executive Officer and Director of Maple Leaf Capital Limited. Zafar Sobani, who got relected, was previously an independent director on the board. Two directors, John Leone and Patrick McGinnis are from Pinebridge Investments, a New York based private, global asset manager focused on active, high conviction investing. Hasnain Aslam serves as the Chief Executive Officer at TRG Pakistan. He is also a founding parent and the Chief Investment Officer at TRG.
Did Chishti put up a fight?
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s per sources, a day before the elections, Chishti was running the numbers and finding ways through which he could make a comeback. This comes just weeks after he was forced to quit. Despite all his plans, on the day of the EOGM, a defeated looking Chishti was found avoiding the meeting. He was mostly outside the auditorium. He made a brief entrance to gauge whether he was getting backlash, and then returned for longer. The participants at the EOGM did not pay heed to him the way they had gushed over him in the past. He had lost his celebrity status. The people that had once called him “charismatic” ignored his presence. They did not want any attention drawn on him. He then made his way up to the stage, a bold move, and spent some time on a calculator. And finally, as one can see in the pictures exclusively obtained by Profit Magazine, Chishti signed over his proxy to Pinebridge as per a contractual agreement. This is based on an agreement made 15 years ago. However, although Chishti is not on the board himself, it is said that he may muster sup-
port from other investors including Ali Siddiqui, Pakistan’s former ambassador to the US, who sits on Afiniti’s advisory board. This, however, depends on how the new board gets along and the plans put forward.
Why is all this important?
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n the past, when one was asked about TRG, the default answer would be that Zia Chisti was ‘charismatic’. So ‘charismatic’, that both the JS Group and AKD – traditional rivals- were bullish about TRG. The question “Why TRG?” was often answered with “It has Zia Chishti”. Following the news of the scandal, one member of the TRG Pakistan sales team said, “I dont know how things are going to be after this. Until this point, my boss told us TRG’s key selling point is Zia. I wonder what my pitch is going to be now.” This board election was important considering 85 per cent of the company’s shares are free float, giving activist investors a chance to launch a bid to acquire controlling stake on the board. While speaking to Profit, a newly elected board member on condition of anonymity said, “‘We want to work together with all directors, stakeholders and shareholders for the benefit of the company and create value’ EoGM was an important event but the process of maximizing shareholder wealth starts now.” Despite the fact that in the past Chishti was made to seem larger than the company itself, one could say that activist investors staging a coup to oust suggests that the investors now believe in the company and their abilities more than they once believed in Chishti. An activist investor is an individual or group that buys a significant stake in a public company in order to influence how the company is run, such as by obtaining seats on its board of directors. It is the equivalent of taking things in one’s own hands. The process is not all that simple. In order to effectively do this, one needs votes to get elected on the board. Some activist investors feel that winning a seat alone is not enough and having a majority on the board is important. Those present at the EOGM told Profit that a number of investors want the company’s image to be free from Chishti. “He is irrelevant now when it comes to the board and major decision making. He is no longer the face of the company. He is just another shareholder with a 15-20% holding. We don’t want the company associated with him after what has happened,” said one investor referring to the sexual abuse scandal that Chishti is mired in. Another said, “It would be best if pictures of Chishti at the AGM don’t make rounds online. That is how bad we want to remove him from the TRG narrative. After what he’s allegedly done, why would any individual
CORPORATE GOVERNANCE
Zia Chishty at the EGM. He spent much time exchanging short greetings with some large investors, conferring with the company CEO
want to associate with him.”
ESG and its significance
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n the past, ESG has often been overlooked by investors and companies but this move will get more people thinking about it and will hopefully send out the right message,” said one of the newly elected directors. As an investor or a capitalist, most of your attention is leaned towards money and returns. However, ESG, Environmental, Social, and Corporate Governance is an evaluation of a firm’s collective conscientiousness for social and environmental factors, and is becoming increasingly more important in today’s day and age. As Pakistan is adapting and gradually making moves towards greater compliance and implementation, it becomes absolutely necessary if the company has big foreign clients. Low ESG ratings or perception could result in a loss of contracts and customers in the long run and a deteriorating global perception. So in essence, Zia not being on the board is better for the business and for shareholders especially when it comes to image, reputation and brand equity for TRG Pakistan.
How did the market respond?
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n the day of the EOGM, TRG shed its price for the first half of the day, however, in the second half the share price moved up with the
company closing up 2.07 points or 1.90 per cent. The share opened at Rs110.11 and hit a high of Rs112.90, and a low of Rs106.25. The next day, TRG opened at Rs 112.75, which shows investor confidence as the stock remained range bound for the larger part of the day and shed value near closing. The stock hit a high of Rs 113.5, and a low of Rs 107.55 intraday and closed at Rs 108.5, down 2.46%. In the case of TRG, there were fears that the stock would tumble following Chishti not being appointed on the board in light of how he was made to be bigger than the actual company and seen as the driving force. The fact that the stock remained stable shows that the market also believes that there is more to the company and its potential than Chishti.
What really is TRG?
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he company is the brainchild of Chisti, a Pakistani-American in every sense of that hyphenated label, born to an American father and Pakistani mother, who grew up in Pakistan but studied and worked in the US. After being ousted from his first billion dollar company, he decided to form TRG. In 2002, TRG Pakistan was created, specifically to act as the global holding company for all of TRG’s investments. It was listed on the then Karachi Stock Exchange in July 2003. The ownership structure of TRG is somewhat complex: TRG Pakistan is the
Signing away his vote in favour of the directors from Pinebridge Investments
overall holding company, but it does not own the entirety of TRG International, which in turn does not necessarily own the entirety of the shares in its portfolio companies. Crucially, at each stage, there are minority investors who own significant stakes, which makes it difficult to track exactly how much the overall portfolio is worth, and how much of it is owned by the shareholders of the publicly listed company on the Pakistan Stock Exchange. This is a key point we will return to. For most of its existence, TRG Pakistan’s subsidiary was TRG International, which is a British Virgin Islands-incorporated holding company, that in turn owns stakes in most of TRG’s portfolio companies. However, in June 2020, TRG Pakistan’s share in TRG International changed from 57.16% to 46.03%. It is no longer a subsidiary, but is instead, technically, an affiliated company. In August 2020, this company completed its initial public offering on Nasdaq. At the time, its post money valuation was approximately $350 million, with the total amount raised in the IPO, prior to expenses, of approximately $90 million. The crown jewel in TRG’s portfolio, however, is Afiniti, a company that develops artificial intelligence software that is designed to help companies improve the efficiency of their business processes, specifically their call center operations. TRG’s investment in Afiniti started in 2005 as a seed investment into a company that was developing a solution that TRG felt its portfolio companies would be able to use. Over time, it morphed into a business in its own right. n
CORPORATE GOVERNANCE
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COVER STORY
By Abdullah Niazi
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n the 9th of December, the once sleepy hill-town of Murree was declared a calamity hit after thousands of cars were stranded out on the roads because of an influx of tourists coming into the area. Before rescue operations could be launched, at least 23 people including children had perished in the night. The outrage that followed the tragedy has been as impassioned as it has been unfocused. While blame was naturally ascribed to the inefficient response of the local and provincial governments, a lot of the backlash focused on the fact that local hotels began charging exorbitant rates from stranded visitors and there also began a widespread call to boycott Murree as a tourist location. However, there is a much more critical lesson that needs to be taken from the tragedy at Murree. Only a few days before the incident, information minister Fawad Chahudhry had bragged that the arrival of more than 100,000 cars in Murree was an indicator of economic prosperity and showed that people were not under any great financial stress. The statement did not age well (to put it mildly) but it tells us something - the government approach towards tourism in the country has focused simply on getting people both local and foreign to travel and experience Pakistan without much care as to how these tourists should be managed. Tourism is a complicated subject that takes a lot of thought and planning. The number of tourist destinations in Pakistan have increased over the past decade, especially with greater road access along the Karakoram highway. But other than connectivity and access it is worth looking at what plans have been put in place in terms of sanitation, real estate development, energy, traffic management, resources, and public awareness.
Tourism in Pakistan
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akistan’s tourism potential has long been known for a long time. Dogged by security issues and political instability, it has been unable to attract a significant amount of foreign tourists even though it has received a lot of media attention as a hidden gem. Different governments over time have been drawn to this idea of turning Pakistan into a tourist hub and some steps have been taken in terms of connectivity and accessibility of remote areas, particularly in the northern regions of the country. Tapping Pakistan’s tourism potential has in particular been a pet project of incumbent Prime Minister Imran Khan. His government came in with the aim of building four tourist resorts a year to reach a total of 20 by the end of
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their tenure. All to promote tourism in the country. According to the 2021 report of the World Travel & Tourism Council, travel and tourism contributed $8.8 billion, approximately 2.9% of total GDP of Pakistan, in 2017. By 2019, the total GDP contribution of tourism to Pakistan was $15 billion which accounts for 5.7% of the total GDP. However, because of the Covid-19 pandemic, this growth fell significantly in 2020 by nearly 25%, falling to $11.6 billion, or 4.4% of GDP. Similarly, jobs in the tourism industry fell 11.1% from 3.45 million in 2019 to 3.63 million in 2020. Most significant to these figures, however, is that the major contributor in this is Pakistan’s domestic tourists. In fact, domestic spending on tourism accounts for 91% of total spending, and foreign tourists bring in a mere 9% of the revenue of the tourism and travel industry in Pakistan. Of this, 93% is leisure spending on travel and tourism and only 7% is for business. This then means that the majority of the demand for tourism in the country comes from within. Nearly five million domestic tourists travel each year across Pakistan. But for all of the natural potential that Pakistan has, it lags behind in some very specific areas. According to the Travel and Tourism Competitiveness Index developed by the World Economic Forum, Pakistan lags in all key sub-indicators with the exception of price competitiveness, which is only the result of the depreciation in the rupee. Out of a list of 141 countries, Pakistan is 130th at having an Enabling Environment, 138th on Safety and Security index, 102nd on the Health and Hygiene index, 138th on the Human Resource and Labour Market index, 123rd on Travel and Tourism Policy and Enabling Conditions, 120th on Prioritisation of Travel and Tourism by the Government, 107th on Tourism Infrastructure, and 141st out of 141 countries on the Environmental Sustainability index.
What happened in Murree?
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he problems that have been described above have plagued Pakistan’s domestic tourism industry forever. There is very little care for environmental sustainability, sanitation is not taken care of, real estate development on the outskirts of places like Murree is rampant with complete disregard for utility provision like sewage and power. The influx of tourists can go in the hundreds of thousands in peak season and finding rooms can be increasingly difficult. Murree is still Pakistan’s most visited and well known tourist destination in the public imagination. What happened in Murree shows the same problems that have been described by the different indicators in which Pakistan ranks badly. In an article for Dawn, Dr Omer Mukhtar Khan, author of the recently published ‘Once Upon A Time in Murree’ argues that “part of the
reason is our collective apathy when it comes to strong urban governance and sustainable environmental practises. Murree has been our top most visited resort since independence and while the elite may have found other places to spend their vacations, the majority of Pakistanis did not have many options and stuck to this beautiful colonial hill town for their brief holidays.” ‘Murree continues to be run from Lahore with very weak local government as elsewhere in the country, limited building regulations leading to monstrous hotels and apartments cropping up, poor waste management systems with trash everywhere, smelly sewage flowing all around and an unregulated and predatory hospitality industry doing the rest in destroying this only mainstream tourist resort for Pakistanis. There is also limited focus on traffic management as well as an effective communications system to inform the public at large about any weather warnings,” he went on to write. This is where our original point comes back in - tourism is not an easy sector to develop. requires development of infrastructure like power, telecommunication, water supply, roads, sewage and sanitation and some associated sectors like travel items, sports equipment, medicines, and cosmetics. Take simply the issue of sewage and solid waste management as an example to try and understand the level of detail that needs to go into developing tourism. Every single industry has a particular wasteful by-product. In the case of the tourism industry, that by-product is solid waste and sewage. A 2018 joint study by the National University of Civil Engineering in Vietnam and Okayama University of Japan, found that on average in tourist hotspots the amount of waste produced per day by a single guest was 2.28 KG. The study, which looked at 120 hotels in tourist hotspots, sampled waste produced from all departments of the hotels such as from the rooms, garden, restaurants, kitchen, laundry, offices, stores, repairing stores, and from other services. Vietnam, which has over the past few years been developing as a tourist destination, has had a fraught history with managing the waste from their tourists. A different study published in ‘The Journal for a Sustainable Economy’ shows that the tourist destination of Hoi An City, which gets more than 3 million visitors a year, generated around 15080 KG of waste daily. The amount of waste that can accumulate when a tourist destination’s population swells during peak season is one of the top problems in managing the growth of the tourism industry. If hundreds of thousands of people are visiting an area like Murree at a time, the size of the solid waste problem has to be measured in the tonnes. Going by the earlier mentioned study, if a single guest is producing just 2Kg in solid
Forest lodges
Basic requirements to develop tourism infrastructure
Tourist complexes / tourist lodges Wayside amenities Restaurants
Mini-buses, jeeps, elephants, etc. for wild-life viewing
Tourist transport
Tourist complexes / tourist lodges
Accommodation
Tented accommodation
Cruise boats, ferry launchers, etc. for water transport Tourist coaches in selected circuits Special tourist trains
Tourist reception centres Pilgrim sheds / dormitories, etc. at pilgrimage centres waste and sewage per day,and you have 100,000 visitors in Murree, that is 220 tonnes per day of waste. That translates to 6600 tonnes of waste per month in peak seasons. The impact can be an urban management disaster as well as an environmental hazard. In 2017, environmentalists raised concerns after hundreds of fish were found dying in Rawal lake because of contamination. The main reason for the contamination was the flow of sewage in the streams of Murree and its adjoining areas into the Korang River which discharges into Rawal Lake. A Dawn report on the issue said that “the Punjab government has yet to take action for stopping sewage from Murree and its adjoining areas from ending up in the lake as it wanted the federal government to install a treatment plant, claiming that the 12 kilometre area around the lake fell in the limits of the CDA. Though billions of rupees are being spent on the development of the hill station, no steps have been taken for installing a sewage treatment plant in or around Murree.” In a 2015 report by the government, the system of sewage in Murree was “non-existent.
“At present no system exists for the drainage of domestic/commercial sewage and storm water in the Murree City area. Sewage is disposed of through lined / unlined drains constructed by local bodies and these drains either disposed of on the hills directly or terminated in the natural hill torrents around the inter periphery of the city. The sewage either seeps down in the crest of hills or contaminates the water bodies in the hill torrents. Especially at the western side of Murree sewage flows upto the Haro River and contaminates its water. Seeping down sewage and storm water in the hill causes frequent landslides and contaminating hill torrents,” read the report. The infrastructure for tourism thus includes basic infrastructure components like airports, railways, roads, waterways, electricity, water supply, drainage, sewerage, solid waste disposal systems and services. Moreover, facilities like accommodation, restaurants, recreational facilities, and shopping facilities also come under the ambit of Tourism Infrastructure. Planning for sustainable development of Tourism Infrastructure, therefore, involves the
integrated development of basic infrastructure and amenities along with all the tourism facilities in a balanced manner. It needs thoughtful planning and dedicated execution. In the case of Murree, the development of the hill-town has come with not just colonial baggage but the disadvantage of being administered remotely from Lahore as part of the Punjab. While Murree is the largest tourist destination in Pakistan in terms of inflow (particularly domestic inflow) it is worth looking at how other tourist destinations are being developed in Pakistan, such as Gilgit-Baltistan, which has seen more interest after accessibility to the region has increased through the China Pakistan Economic Corridor (CPEC) and the Karakoram Highway.
The Gilgit-Baltistan example
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n April 2021, Prime Minister Imran Khan announced the historic five-year development package worth Rs370 billion for Gilgit-Baltistan (GB) during his visit to
COVER STORY
Gilgit. After the inauguration of some projects of the Special Communication Organization (SCO) in Gilgit, the prime minister said that the government was starting with a package of Rs370 billion to be spent over five years and that never before had such an amount been spent in the area. The Rs370 billion development plan includes PSDP funding of Rs275 billion in three years with an average Rs55 billion per year. At least 18 new PSDP projects are included in the package with the cost of Rs130 billion. Whereas 11 ongoing projects of PSDP of Rs31.2 billion are also included in the package. Besides, at least 2,114 ongoing projects of the Annual Development Programme (ADP) of GB worth Rs113 billion are also included in the development package. The major focus of the package and the projects is supposed to be developing infrastructure in Gilgit-Baltistan to make it an attractive location for tourism. For tourism in particular, skills development and training related to tourism, Rs6 billion have been allocated, while Rs17 billion will be spent on projects relating to health and education initiatives. However, other than health and education, the allocation of the money is supposed to be in the general interest developing tourism in the area. As part of the package, there are five road projects worth Rs35 billion, two big water projects of Rs8.5 billion including a water supply scheme for GB and a sewage and sanitation scheme for Skardu. There are also various projects such as incubation centres for promoting business and entrepreneurship, flood protection structures, enhancement of biodiversity and aqua systems, network expansion of 3G and 4G services in the pipeline. All of these projects from sanitation to mobile connectivity are critical to any sort of tourism economy developing in the region. According to data gathered in the last three years, the flow of domestic tourists in Gilgit-Baltistan is 86% while the rest is foreign tourists. Back in 2012, the government of Gilgit-Baltistan had tried to identify some of the problems that were resulting in poor inflows into the area for tourism. In a presentation given by Imran Sikandar Baloch, then Secretary Tourism, the problems started from the condition of the Karakoram Highway, which was in poor condition with no alternative road available. If the highway was choked or if there was a particularly bad landslide, there would then be the issue of long pileups in an environmentally volatile and harsh area. And the infrastructural issues did not end there. Unpredictable flight scheduling and the woes of PIA bookings means that by-road is the only sensible way to approach the issue. The
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How much waste is a single tourist responsible for? More than 2KG each day One of the biggest problems faced by planners when developing tourism is waste and sewage management. According to an EU report, tourism is responsible for a significant chunk of waste generation in Europe, and overall produces 35 million tonnes of solid waste per year globally. According to a joint study by two universities in Vietnam mentioned in more detail in the story, a single tourist produces close to 2.5 KG of waste in a single day. With hundreds of tourists streaming in during peak season, managing this solid waste and sewage problem is of the utmost importance.
centralised issuance of permits and conduct of briefing and debriefing in Islamabad is also an issue in addition to the lack of tourist facilities at the tourist attractions and lack of skilled manpower despite a reasonable literacy rate. The presentation also highlighted how there is a lack of authentic tourism related data or any baseline study by reputed parties, a lack of online information, reluctance of major travel insurance companies to insure foreign tourists, the absence of a tourism policy, mushrooming growth of civil structures due to absence of zoning laws, and no tangible investment policy. Since then, a lot has changed. For starters, the Karakoram Highway as part of CPEC has been cleaned up and made accessibility to the region much easier. In terms of getting there, the Skardu airport has also improved. Only recently, in December 2021, Prime Minister Imran Khan inaugurated the Skardu International Airport and Jaglot-Skardu road during a day-long visit to the region. The airport in Skardu was previously only operational for domestic flights, and the Prime Minister promised that if Switzerland could generate $70 billion from tourism then “we can make at least $30-$40 billion from tourism just in GB”. Meanwhile, through the Rs 370 billion package that was mentioned earlier, the government wants to address the issue of a dedicated workforce through skills development programmes. Progress has clearly been made and the number of tourists coming into the region has increased over the past few years, especially since the paving of the Karakoram Highway. Two major communication projects included in the package, including Astore-AJK Shuntar Road (connecting GB with Punjab via AJK) and Gilgit-Chitral Road (via Shandoor) Road (connecting Gilgit with KPK and Rawalpindi/ Islamabad) would play the major role in tourism development in GB and adjoining areas. These roads are in addition to the existing highway.
In May 2021, during the peak summer months, Skardu and Gilgit airports on Tuesday saw a massive rise in flight operations, at par with major cities of Pakistan, when nearly 16 PIA flights operated to and from both the cities daily. The airports saw a hustle bustle with flights continuously arriving and departing at the same time. Getting to GB for tourism has become easier for sure. But is the region equipped to handle such a large and rising load of visitors? Have arrangements been made to first discourage the use of single-use items like plastic wrappers, or safe and sustainable disposal of the sewage that such a large number of visitors will bring? Already pristine parts of the region, like Deosai, are littered with plastic waste. What will happen millions of people start visiting the region over one season? Zoning laws are not clearly implemented, power coverage in the region continues to be low, sewerage and sanitation treatment and disposal is virtually non existent, and other than getting there the tourism process has not become significantly easier in terms of having facilities like accommodation, restaurants, recreational facilities, and shopping facilities.
Case study - Malaysia
T
he example of Malaysia could be one that Pakistan could look to learn from. There are, of course, structural differences that make things easier for Malaysia and are important in developing any kind of tourism anywhere. For starters, they have a stable political system unlike in Pakistan. Malaysia also has developed and modernised infrastructure including roads and highways linking different cities, renovated and new airports, international standard car rental system, high-speed trains, reconstructed public transport system (trams, buses, taxis etc.), public internet facilities.
TEXTILES
In addition to connectivity, they have also focused on developing shopping centres, tax exemptions on luxury goods and exchange rate management. There is great emphasis on the maintenance of tourist sites, conservation of archaeological sites, renovation and the development of urban areas. The government has also given the private sector representation in policy making and reduced obstacles for international and local investors in Malaysian entities. Like Pakistan, travel to Malaysia is also cheap and there is a very favourable exchange rate for travellers from developed countries. However, for domestic tourists, there are also strict policy measures for crime prevention, especially in tourist areas and developed outstanding health care systems for tourists. Malaysia has also been successful in promoting education for the development of skilled resources, professionalism, and innovation in the tourism industry - which as mentioned is what is being attempted in Gilgit-Baltistan and other regions as well. The government of Malaysia partnering with private agencies for production
of telegraphic imagery including movies, documentaries, adverts etc. for the branding of Malaysian tourism outside of international borders including channels such as National geographic and discovery channels. The entire “Malaysia Truly Asia” campaign in 1999 and “Visit Malaysia (VMY) 2014” were both incredibly popular and successful marketing campaigns that brought serious tourist attention towards the island nation. They have also encouraged tourism activities such as amusement parks, casinos, races such as the grand prix and formula one — essentially, it is not enough to be just scenic. There need to be things to do. What are the lessons Pakistan can take out of this? That the government should focus on encouraging more activities related to tourism and focus on creative tools for tourism development based on local resources, such as arts and culture, local wisdom, history, and archaeological sites. Another critical factor would be developing rapid public transportation between tourist areas and cosmopolitan cities for better linkage and accessibility. In Pakistan in particular, there is a dire need
to Increase patrolling and crime prevention techniques for more security. It will be vital for the government to show more concern about low-carbon tourism, and they should show more concern about law enforcement to preserve the natural environment and to increase awareness about eco-tourism in the society.
Conclusion
T
he tragic events in Murree must never be allowed to happen again. Over the years, our tourism infrastructure has failed us. There has been a complete disregard for planning, no focus on developing areas and spaces for domestic and international tourism, and very little attention given to risk mitigation and disaster management. With the government banking on tourism being a big money-puller for Pakistan, there will be the need for some serious introspection after the incident. And this introspection must not simply be limited to the incident at Murree, but making sure we learn from our mistakes and treat the areas we have poised to be tourist hotspots with the respect and care that they deserve. n
COVER STORY
Cnergyico
leaps ahead of Shell and Total to become largest private-sector fuel retailer The acquisition of Puma Energy Pakistan means that they are now the second largest fuel retailer after state-owned PSO By Abdullah Niazi
A
shift is underway in Pakistan’s energy and power sector as Cnergyico, erstwhile known as Byco, is set to become the largest private sector fuel retailer in Pakistan. The change in market position for Cnergyico comes after it was announced that they were going to acquire a majority stake in Puma Energy Pakistan Private Limited (‘Puma). After the acquisition, Cnergyico will become the second largest retail fuel network in Pakistan overall, behind only the state owned Pakistan State Oil (PSO). Based on the current numbers shared by OMCs in Pakistan, Cnergyico is overtaking Shell and Total to become the leading private sector fuel retailer in the country. The deal with Puma will add 542 fuel stations to Cnergyico’s holdings, taking its total to about 1,000 and making it the largest private fuel retailer in the country. State-owned Pakistan State Oil Co. has 3,500 retail stations, Total Parco Pakistan Ltd. has more than 800 outlets and Shell Pakistan Ltd. has 766 outlets. Even before the acquisition that has significantly expanded the portfolio of the company, Cnergyico had one of the largest refining capacities in the country. They are the owners of Pakistan’s biggest oil refineries with an installed total capacity of 156,000 barrels per day located in Hub, Balochistan. Furthermore, the company owns a dedicated deep-sea oil terminal that is used to import oil for the refineries. The move comes just over a month after Cnergyico officially changed their name from Byco. The announcement was made at the beginning of December 2021 because, in the words of their CEO Amir Abbassciy, “to mark our evolution from an oil company to a strategic oil refining and marketing company.” However, the name-change had also come only a few months after the federal government
ENERGY
had very casually leveled serious allegations of creating artificial shortages, violating international sanctions, and defrauding the state-owned fuel retailer against Byco. “The acquisition of the majority stake in Puma Energy demonstrates our continued interest to further strengthen and diversify our business,” said Mr. Amir Abbassciy, Chief Executive Officer - Cnergyico Pk Limited, “We have made a commitment to grow, modernize, and diversify our business and the takeover of Puma Energy will help support this strategic plan.” Despite the name change and the few hitches along the way, Cnergyico seems to be going strong. Originally founded as an oil refinery company called Bosicor in 1995 by Parvez Abbasi, a former Caltex employee and veteran shipping & trade finance industry man, Cnergyico has undergone a lot of changes and challenges over the years. Construction of its refinery did not begin until 2001, and its refinery did not start production until 2004, when its refinery in Hub, Balochistan started production. The refinery started off with a capacity of handling just 8,000 barrels of crude oil per day but grew to a capacity of 30,000 barrels per day within its first year. In 2009, the company renamed itself Byco. It was not until 2007 that the then Byco launched its petrol retailing business, opening up its first petrol pump in Sukkur. From that initial petrol pump, Cnergyico’s board of directors after approving the acquisition of 57.37% shares of Puma Energy have made sure that their network of petrol pumps has grown over 1000 and left behind its private sector competitors, Shell and Total. According to a report in Bloomberg, Cnergyico will continue to operate the two brands separately and will be the supply backbone of the second largest amassed retail network of fuel stations in Pakistan after PSO. The company also owns two storage terminals in Machike, Punjab and Daulatpur, Sindh that can together store up to 10,500 MT of petro-
leum products. The opportunity to make the acquisition came because Puma Energy Holdings Pte, sold its stake in the Pakistan unit to joint venture partner Chishti Group last month. The struggling emerging-market fuel retailer and storage firm controlled by trading house Trafigura Group Pte, has been in talks to sell infrastructure assets in more than 30 locations, according to another Bloomberg report. The Swiss origins company which supplies and stores petroleum products, offers storage, transportation, logistics, and wholesale distribution of oil has been unprofitable for years following a debt-fueled acquisition spree. Trafigura, the trading house behind the company, raised its stake in April by agreeing to buy Sonangol’s entire interest in the business in a $600 million deal. As Cnergyico goes forward, it will be interesting to see what they do with their newfound position as the largest private player in the market. As one of Pakistan’s leading energy firms, they will be looking to focus on productivity and profitability. They are already Pakistan’s largest oil refiner by design capacity, and is the nation’s only firm having a dedicated Single Point Mooring (SPM). Cnergyico’s SPM is the only floating liquid port in the country, and the company employs a round-the-clock crew dedicated for the safety and security of the buoy and vessels in and around the SPM’s anchorage area. Cnergyico refines crude oil into various marketable components including Liquefied Petroleum Gas, Light Naphtha, Heavy Naphtha, High Octane Blending Component, Motor Gasoline, Kerosene, Jet Fuels, High Speed Diesel and Furnace Oil. The Company is proud to have the largest capacity crude oil storage tanks in the country. Cnergyico’s marketing network supports retail outlets in more than 80 cities all over Pakistan and is an emerging player in Pakistan’s oil marketing sector. They have approximately 900 dedicated employees across the firm’s divisions. n
25
OPINION
Ammar H. Khan
The paradox of gas prices
In absence of gas availability through pipelines, most domestic consumers substitute gas with LPG. As per latest prices notified by OGRA, gas available through LPG is priced at US$ 23.75 per mmbtu. This is essentially at a 91 percent premium to the price of imported gas. Gas purchased through a LPG container also has safety concerns, while requiring additional time and resources for buying more gas, or simply swapping containers. The customer is paying a significant premium to get gas, which is greater than 100 percent after adjusting for retailer margin and other costs, even though the same gas can be supplied at market price to the customfew weeks back we talked about how fixing prices lead er, and still be at a substantial discount to the price of LPG. to a market failure regardless of the commodity under Through a fixed price, or a price which is hostage to populist consideration. A peculiar case here is that of natural measures, the market has evolved in such a manner that an efficient gas. A molecule of natural gas with its energy content mode of transportation has been superseded by highly inefficient measured in mmbtu (metric million British thermal unit) LPG containers. It is understandable that LPG plays a critical role will generate the same level of energy. Essentially when in supplying gas where pipeline infrastructure isn’t available, but a consumer pays for natural gas, they are paying for that energy. In an utilization of LPG where pipeline infrastructure is available is just optimal scenario, a consumer would prefer the same content of energy at colossal inefficiency. Gas pricing in the country is probably one of lowest possible price through an efficient delivery mechanism. those rare cases where there is a welfare loss for both consumers In the real world, that efficient delivery mechanism is known as a (who have to pay a higher price for LPG), and producers (who have gas pipeline. Pakistan has one of the largest natural gas pipeline networks unutilized infrastructure). Welfare surplus is for traders and midin the world, whether that was a smart infrastructure investment or not is dlemen who are exploiting this arbitrage. As discussed above, the a separate debate, what matters is that an infrastructure already exists. molecule remains the same, how the same is transported, and how A natural gas molecule is either extracted from local gas fields, or the same is priced is what results in welfare surplus, or loss. imported in liquid form, and eventually gasified, and sent through pipeRecently, there has been a push for reform with the Federal lines. Alternatively, a molecule of gas can also be extracted from Liquified Minister for Energy calling for implementation of a Weighted AverPetroleum Gas (LPG), which is sold in specialized containers. This is age Cost of Gas – although a fairly simple mathematical calculation, pretty straightforward until now. The paradox is in how natural gas is the political calculus is convoluted. Resolution of the gas crisis and priced. On a per mmbtu basis (the most basic unit of energy), gas that is reversion to consumer surplus would require a national consensus supplied to most domestic customers is in the range of US$ 2 to US$ 5, across the board. Before that can happen, it remains essential the but if the same gas is imported, the blended cost is US$ 12.37 per mmbtu importance of market price, and how the transmission mechanism as per latest notified RLNG price by OGRA. actually generates consumer surplus is effectively communicated. If we look at prices on a marginal cost basis, importing gas and supEasier said than done, but a complete revamp of gas distribution plying the same to domestic consumers is a loss making proposition. Each companies has been long overdue. molecule of gas supplied would result in a loss. Furthermore, as price is The Sui twins operate with precarious financials and substanfixed at an unreasonably low level, the demand is much greater than the tial unaccounted for gas losses – which are high enough to become supply resulting in a shortage, which is further aggravated during winter the largest consumption category on its own. As imported gas as demand for heating increases. passes through the pipeline, it is important that wastage is minimal, as any wastage or loss is effectively borne by the consumer through either a higher price, or a shortage. Policy makers need to decide whether they want a sustainable consumer surplus, or they want a myopic solution where the optics of fixing prices results in a shortage.Transitioning towards a market-oriented pricing mechanism requires tough political The writer is an decisions, and one hopes that the incumbent can push the process of reforms forward. In absence of any reforms independent or due to delays, the situation will continue to deteriorate, billions of dollars invested in pipeline infrastructure macroeconomist and would remain unutilized and become stranded assets. Consumers will increasingly shift towards utilizing LPG energy analyst. in absence of any other viable option, while gas distribution companies would collapse under their own weight, or become yet another white elephant for an already overburdened national exchequer. It is time that we let the market find its equilibrium price, and let the policies be tilted towards sustainable consumer surplus, rather than be driven by rose-tinted optics of a fixed price.
How fixing prices destroys consumer welfare
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26
COMMENT
OPINION
Uzair Younus
Do not ban crypto
and services catering to this new internet. This is where public blockchains and crypto assets come in, as they are the foundational layer of the emerging Web 3 ecosystem. Blockchains remove We are squandering the natural crypto the need for there to be a trusted third-party guaranteeing the sanctity of information – you do not need a central bank to issue reports on the validity potential that exists in the country of transactions on the Bitcoin or Ethereum blockchain. To make this possible, eports on January 12 indicated that the “State Bank blockchains rely on modern cryptography, which is why tokens issued on of Pakistan and the federal government have decided public blockchains are often referred to as cryptocurrencies or cryptoasto ban the use of all cryptocurrencies.” This decision sets. These tokens help secure, validate, and record transactions on public seems to have been made in a report submitted to the blockchains. How do they do that? By helping resolve the double-spending Sindh High Court, which had a few months ago asked problem: given that data on blockchains is stored in a distributed manner, the federal government to regulate cryptocurrencies in the country. you need a source of truth to validate transactions. Without this single source While it remains unclear as to what the regulatory framework will of truth, it would be easy to falsify records, and if this were to happen, trust in be, it is concerning to see that policymakers are once again reneging the entire blockchain would collapse. on their duty to pursue smart regulation that promote innovation and These crypto assets are also tradeable, much like shares in a public limentrepreneurship. ited company are. The valuation of these assets acts as a signal to developers Pakistan has one of the highest rates of crypto adoption in the and market participants about the growth and viability of the blockchain world, and while exact numbers of how many citizens have invested project. Details about these projects are publicly available, including whitepain crypto assets are not available, it is safe to argue that there are more pers articulating what the project is all about and its technological frameindividual crypto investors than stock market investors in the country. work. These flows are also traceable: the FBI leveraged publicly available data There are many reasons for this, key among them being the ease with to recover over $4 million in ransom paid by a U.S. pipeline operator. which a citizen can open a crypto wallet, the allure of exponential However, like public stock markets, crypto markets are prone to mareturns, and the way in which the global crypto industry has leveraged nipulation and scams. Pump-and-dump schemes and irrational exuberance is democratized flows of information to generate a movement of believnot unique to the crypto market: one of the earliest recorded instances of this ers. It is therefore no surprise that almost every conversation related to is the Tulip bubble. This is the reason why countries around the world, rangmoney around the world has some mention of crypto, blockchain, and ing from India to Singapore and the United States, are pursuing regulations Web 3 technologies. that balance between risk mitigation and innovation. To do so, countries At their core, these technological changes are ushering in a new have brought together academia, technologists, investors, and policymakers internet, one that promises to be more decentralized and democratic. to have in-depth discussions about what the future of the internet is all about This promise of breaking the control of monopolistic gatekeepers and how sovereign nation states should approach this topic from a public ought to be viewed with skepticism – after all, Facebook has renamed interest perspective. The Sindh High Court’s orders should have been preitself Meta and indicated a desire to invest billions of dollars in this empted by policymakers in Pakistan. Because this was not done, an arbitrary new internet. However, the truth of the matter is that a new internet deadline on regulations was set by the courts and in the absence of clear economy is emerging around the world and tech-savvy individuals are regulations, almost $100 million of hard-earned savings were stolen through playing a fundamental role in building the technology, applications, scams, as reported in the media. But it is still not too late for the government to pursue an inclusive, collaborative policymaking approach that seeks to guard against downside risks, including those related to money-laundering and terrorism flows, while also promoting innovation and entrepreneurship in this space. The latter cannot happen if the state decides to ban crypto assets. In fact, doing so The writer is would be a crime against innovative citizens who have educated themselves about the future of the internet and made a bet Director of on it to earn a living and generate wealth for themselves and their families. A ban would also undermine the central bank’s dethe Pakistan sire to develop a central bank digital currency: after all, you need the market to develop technical talent and knowhow about Initiative at the blockchain technology and crypto assets, and if there is a ban in place, the development of this talent base will be stunted. Atlantic Council, Detractors may argue that this is just gambling and speculation, but such points were made in the early era of the a Washington internet as well. After all, many of us remember people mocking youngsters spending time on IRC and MSN Messenger and D.C.-based think asking the question: what is the need for all this? Those youngsters are today’s technology entrepreneurs, bringing in over tank, and host $300 million in investment to the country, making it into one of the world’s largest freelancing markets, helping diversify of the podcast exports by providing information technology services to the world, and generating thousands of new economy jobs. Web 3 Pakistonomy. innovation is the next phase of the internet revolution, and it is the state’s duty to create an enabling environment for this secHe tweets @ tor. Without this, the innovation potential of talent that can create new jobs, grow exports, and generate wealth for society uzairyounus. will fall by the wayside.
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28
COMMENT
The mini budget is the price of failure
The real story is that the mini-budget would not have been necessary had our policymakers not doled out freebies to the elite in early FY22 By Mushtaq Khan
D
espite the headwinds experienced when the Finance (Supplementary) and SBP Bills were tabled in the National Assembly last month, PTI had the votes and the strategy, and the two Bills (key prior actions to restart the EFF) were approved yesterday. We can now look forward to the $ 1 bln tranche and the IMF Staff Paper. People will blame the IMF for the mini-budget and the pain it brings, while our policymakers will shrug their collective shoulders in sympathy and look elsewhere. The real story is that the mini-budget would not have been necessary had our policymakers not doled out freebies to the elite in early FY22, and now that they are left with a sizeable fiscal hole (which the IMF will insist be filled), they had no choice but to push the burden on the average citizen – take from the poor and give to the rich. But the lopsided burden doesn’t end there: while the poor and middle class will suffer from higher prices (and the increase in fuel prices that is expected in a couple of days), the economic certainty will be a source of much comfort for the affluent. Ahhh… back to the IMF program. The price of this economic certainty is political uncertainty. Each person played his/ her part in the 7-hour National Assembly session yesterday. Prime Minister Imran Khan and PTI’s top leadership were there till midnight, as were the heavy hitters from all opposition parties. Perhaps they all felt that this was too important an event to skip, and appearances, after all, is as important as delivering results. As the public pain begins to mount, the opposition is likely to find common cause to move towards a vote of no confidence. While the Establishment had a clear view on the two Bills – the economy needed to be rescued and the IMF was the only option – it may not be so clear about the future of the PTI government. But at least we have the EFF. Someone asked me about the Finance Minister’s view that the mini budget is really only about documentation, and not about new taxes. First, I thought it was an artful dodge,
NEWS ANALYSIS
but I now see the logic. The Dawn (14th January) claims that Rs 112 bln will come from reinstating GST on imported machinery and another Rs 160 bln from imported pharmaceuticals inputs, and only Rs 71 bln worth of taxes will burden the people. Shaukat Tarin argued that tax rebates would be available on imported machinery and pharma inputs, but if the rebates are availed, it would reduce GST revenues. So, what’s the point? The point is that GST would be collected at the import stage and that would boost FBR’s revenues. In turn, importers would pass this on to consumers of pharmaceutical and other products. For the most part, individual consumers are not likely to apply for rebates as few file their taxes, and for those that do, who is going to document all their medicinal purchases for the year. Furthermore, only the white-est of importers would apply for rebates as this would surely invite further inquiries from FBR. So, it’s a trade-off: secure revenues because no one asks for rebates; or provide rebates, increase documentation but generate less revenue during the course of the year. I’m sure the IMF would approve of this tradeoff. Final point about the SBP Bill and the “loss of sovereignty”. Instead of countering this erroneous view, SBP is talking up its own performance and talking down to the market, while
opposition leaders are beating their chests about the IMF taking control of the central bank. The optics could not be worse: December’s current account deficit (CAD) is likely to be released by Jan 21st and is expected to be elevated (our estimate is $1.4-1.6 bln). However, SBP has been strictly managing the rupee since Dec 10th, and as a lead-in to the IMF board meeting in end-January, SBP may have to let the unsustainable external deficit be “reflected” in the rupee parity. This means the rupee could start weakening around the time the CAD data is released. While many analysts will happily equate the January currency adjustments with December’s CAD, media and the opposition will connect the dots using a political lens – this has been dictated to the central bank by the IMF. As we have all been conditioned to see the value of the rupee as symbolizing the health of the economy, when the rupee starts to weaken, this will be viewed as the nefarious designs of the IMF executed via a subservient SBP. While most Pakistanis will blame the IMF for their pain, some of them will point their guns at the SBP. But let’s not forget how we got here. The government is taxing the people to make up for the tax exemptions it gave to the rich, and the rupee is weakening because we import much more than we export. So, let’s stop blaming the IMF and blame ourselves instead. n
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When the President cracked a billion rupee gag Why would a government venture into the high-risk business of venture capital funds?
By Taimoor Hassan
W
ait till you hear this one. At an event held in September the President of Pakistan made a passing remark that his team has been working to dodge ever since. The event was held online on September 8, 2021 and hosted by PakLaunch, a community of successful Pakistani expatriates. It was their inaugural conference on startups titled “Pakistani startups: The next big thing.” The big idea behind the event was to let investors know that the government is playing its part to support tech startups in Pakistan. The President delivered the welcome note which was followed by panel discussions by investors who have invested in Pakistan and their experience with startups here, as well as heads from the Ministry of Science and Technology, the State Bank, the Pakistan Stock Exchange, and Special Technology Zones Authority. Much of the address was usual bread and butter remarks one has come to expect from government officials. He introduced the theme of the event, underscored the need for “establishing linkages between the startups and investors” in a short five minute recorded video. So far so good. After all Pakistan’s market has been hot for tech investors, catching the attention of heavy-hitters in the world of venture capital. Why wouldn’t it catch the attention of international investors? Pakistan is a country of 220 million strong, most of whom are youngsters between the age of 15 and 33. The president, however, decided to take it a notch above and called the youth bulge educated and ‘mostly English speaking’ which would help with communication and establishing the linkages with foreign investors. The President then outlined the initiatives taken by his government to support the tech startup ecosystem, how the government had invested Rs20 billion in the youth under the Kamyab Jawan Programme with plans to invest another Rs100 billion and how there was a network of incubators in Pakistan (which by the way were started under the Pakistan Muslim League-Nawaz government). And then he dropped a quixotic little
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boast. The government was preparing, he declared to his audience, to announce a Rs 1 billion venture capital fund which would be run by the Securities and Exchange Commission of Pakistan (SECP). Most people who attend these events usually sit through such announcements without much ado. But attentive listeners were left a little puzzled. Why would a government venture into the business of venture capital funds, since it is a high risk business and the rewards are usually difficult to quantify or measure? There are examples of government run venture capital funds around the world, from India and China to Europe and America. But in Pakistan government ownership of a VC fund makes little sense. Second, why would the SECP operate such a fund considering it is a regulator and not in the business of operating businesses? He knew this, since he even mentioned in his speech that the SECP is a regulator. Given these questions, Profit decided to approach the SECP and ask them more about the VC fund announced by the President. Many attendees at the conference would approve, no doubt, of more government support for startups. After all, this will help create jobs, startups can be taxed on their revenues, and the investment has the potential to generate healthy returns in the future. Governments around the world do take equity positions in startups: UK government’s Future Fund owns equity in over 150 startups, India has a 10,000 crore fund for startups called ‘Fund of Funds for Startups’ besides venture capital funds of state governments, Saudi Arabia’s Public Investment Fund is a backer of some of the biggest startups in the world, like Uber. So it can be considered good news by many if the Government of Pakistan launches a venture capital fund to support startups. The problem is that no one seems to know anything about this fund that the President announced. When contacted for comment, the SECP denied any such fund was in the works, saying that as a regulator it could not operate such entities. Instead, they pointed to the National Investment Trust Limited (NITL), which is the asset management company of the Government of Pakistan, saying they were the real launchpad
for this venture. But when Profit asked NITL they also denied creating any such fund, as well as any knowledge of any such fund, and said that they had not been approached by the government for any such initiative. So we reverted back to the SECP which then retracted its earlier statement about NITL as the launchpad for this fund and said that NITL was not launching a venture capital fund but a social impact fund. “The President had misspoken when he called it a venture capital fund” the SECP spokesperson told Profit. “In fact it was a social impact fund he was meant to say, being launched by NITL.” It makes little sense, however, that the president would mention launching a social impact fund at a conference about venture capital and startups. It makes even less sense that the President would misspeak in pre recorded remarks during which he read from a written text. The said social impact fund was created by NITL in August last year which is a microfinance focus fund, aimed to make investments in social initiatives such as women empowerment. Plainly, this does not check the venture capital box and there is no sense in the president mentioning the creation of a social impact fund at a conference about venture capital funds. The confusion, however, does not end here. An official from the office of the president told Profit that the President did not mean to say that SECP was launching any venture capital fund because it can not do so as a regulator. The official first said that the president misspoke, and later said that he was only reading the message that was given to him. Who gave him the message? Well the president’s office did not seem to know and asked for more time to find out who gave the message, which would confirm who is launching the fund, if it is being launched at all. At the conference, President Alvi also mentioned that another venture capital fund was being launched. “At the same time, another venture capital fund of the same amount is being started so that the startups can roll themselves into the market,” the president said. Thankfully, this time, he did not say if the second fund was also being launched by the SECP, any other government organisation or if it was a private venture.n
TECHNOLOGY
ARE PAKISTANIS WILLING TO RENT THEIR SHAADI CLOTHES? The first circular fashion startups are here. But will the market take the bait?
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By Ariba Shahid & Abdullah Niazi
W
hen you study economics in A levels or take a principles of economics course at university, one of the things that is bound to be a part of the syllabus is the concept of the circular flow of income. This flow of income, which results in a ‘circular economy’ is a hypothetical model in which there is an economic system of closed loops in which raw materials, components and products lose their value as little as possible. The ‘closed loop’ aims to keep leakages to a minimum, and promote sustainability. The basic model suggests that there are no leakages or injections. Everything earned is spent, and so on. As the model gets complex, you add more players and leakages and injections. Perhaps one of the examples that lends itself best to this model is the retail fashion industry. Both because the fashion industry is built upon being very wasteful and because concepts of sustainable fashion have permeated into mainstream fashion discourse, including in Pakistan. Try to understand it like this. The current state of the world is run by consumption and consumerism in what is very much a linear economic approach where things are produced, used, and then thrown away or discarded. An example of that in the world of fashion is what is known as ‘fast fashion’ where mass market retailers use cheap labour in the third world to produce inexpensive clothing rapidly in the third world in response to trends. The clothes produced here are cheap, do not stay in fashion for long, and have a much shorter lifespan. Circular fashion, inspired by the no-waste ethos of a circular economy, goes against the grain and believes in producing clothes that can be worn for a long duration of time and are of sturdy material that doesn’t end up at a landfill three months after being bought. In a way, circular fashion is the anti-fast fashion movement. Where Fast fashion products usually last a season in terms of durability and style, circular fashion aims to produce clothes that are seen as not a passing fad but as staples that are timeless, To put this in perspective, the fashion industry generates 13 kilograms of waste for every person on the planet in a year. Less than 1% of the material used to produce clothing is recycled into new clothing. Globally, the fashion industry is responsible for 10% of
humanity’s carbon emissions and the industry is constantly adding billions of clothing to the market every year with a vast amount going to waste or used once or twice and being discarded and relegated to landfills. Circular fashion aims to address this problem and reduce waste in the industry by prolonging the life cycle of clothing already within the market leading to a more sustainable and conscious use of clothing. Keeping that in mind, a number of startups have emerged that sell preloved clothes. The startups are small, and are not tech-based. Their model is simply collecting pre-loved clothes (as they are called by supporters of the sustainable fashion movement), cleaning them up, marketing them, and selling them online. Now, sustainable fashion in Pakistan is being taken a step forward with some new companies getting into the business of lending clothes. Rent It, based in Lahore is one such startup where you can both rent or lend your clothes. In order to rent, all you have to do is go onto their website, pick an outfit and date, and book it. It will then be dry cleaned and delivered to your place. You will have to return the outfit when you’re done. They also provide alterations and customization. As a lender, you can ‘monetize your wardrobe’ and lend your outfits to them too. It offers a solution for two different problems - having too many clothes and having too few. However, the question is whether the market is big enough for there to be demand for this kind of service, and whether or not sustainable fashion is catching on fast enough to warrant such changes.
Sustainable fashion in Pakistan - the size of the market
B
ack in October last year, Profit did a story on the ‘online landa.’ The story was about how clothes given out as charity end up at the landa in third world countries like Pakistan, and how the landa was being frequented not just by the poor but also by people from relatively affluent backgrounds with an eye for brands buying these clothes cheap and selling them online or over Instagram. One of the most interesting aspects of the story was how the concept of sustainable fashion was used to market these clothes. The way this starts is that Charity organizations in developed countries like Oxfam, the Salvation Army, and even the Roman Catholic Church collect second-hand clothes from their donors. These donors often think
that the clothes will be shipped off to the third world to be distributed freely among people that need them. This is a common misconception. Packing the clothes and distributing them would be an expensive task, so instead these charity organisations end up selling these clothes and using the money to fund other charitable activities. To be fair to the major charities, they do not claim to give your old jeans and T-shirt away for free, but it is not readily apparent that donated clothes will be sold to traders who will then retail them. These retailers have made a business out of hand-me-down clothing. The clothes are literally bundled up and sold at a rate of per-kilogram. These retailers then sift through the clothes, and separate torn or useless items. are recycled and used again as things like insulation materials, and soiled garments end up in landfill or incinerated. The market for this is massive. One report in The Guardian estimated that globally the wholesale used clothing trade is valued at more than £2.8 billion, and Pakistan plays a significant role in this. In the past few years the demand for these clothes has only increased. According to data released by the Pakistan Bureau of Statistics (PBS), during the last fiscal year (FY 2020-21), the import of used clothing increased by 90 per cent to $309.56 million and it weighed 732,623 metric tonnes. The year before that, there was an increase of 83.43 percent in terms of price. Pakistan imported 186,299 metric tonnes of pre-used garments during the first two months of the FY 2021-22 (July-August), which makes up for an increase of 283 per cent over the same period of last year, which translates to a spending of $79 million. These clothes are then bought by people who sell them online at a markup. They brand their products as ‘pre-loved’ or ‘rescued’ and supporting sustainable fashion, which they claim is environmentally friendly. Essentially, they are making fast fashion even cheaper by making it more recycle-friendly. While one can doubt whether it is a love for the environment that drives people buying off these pages or cheap clothes, it has been a tactic that has been successful, and it has been a win for the concept of circular fashion. Now imagine applying the same concept not to fast fashion but to high-end bridal couture. How, you ask? Where will you find high-end wedding dresses and clothes at the landa? You won’t. The answer is finding them in people’s homes and hoping customers will be willing to rent out clothes. The only question is whether or not there is enough demand.
FASHION
Is the bridal couture market big enough?
T
here is no exact way to figure out how big the size is of the Pakistani bridal couture industry. The reason is because the industry is, no surprises, quite informally organised. While we see big names selling expensive dresses, what one needs to remember is that most of the sales are off the books or not reported. Smaller designers do not have accurate records, and understate their sales, and that is if they pay taxes to begin with. In short, what we’re trying to say is the industry is filled with tax evaders and avoiders. Profit, however, has managed to reach an arbitrary number. The size of the wedding dress industry for just a wedding dress and not the reception is sized at Rs 105 billion. For Shadi and valima you could say it’s Rs 210 billion industry. How did we get to this number? This is our methodology, which you can feel free to skip: As per the Pakistan Demographic and Health Survey 2017-18, approximately 2.7 to 3 million people got married in 2018. Assuming the higher end of the range, that means 1.5 million weddings happen in a year. Considering a 2% growth rate in population, we’re going to assume that the number of weddings also increases by 2% in a year. That means approx. 1.6 million weddings happened in 2021. In order to calculate the size of the wedding industry we’ve assigned weightages and multiplied it with average prices. Doing so, we were able to estimate the current size of the bridal couture industry at Rs 105 billion. However, doing so, the average price of a dress comes to Rs 65,750. This is because although the weightage for the top 0.5% is less, it is able to contribute significantly to the total revenue. Moreover, if we continue with our 2% growth rate assumption, and add 10% inflation, we expect the bridal dress industry to reach Rs 300 billion by 2030. It is important to note that this is our estimate for the market size of just one bridal dress. Pakistani weddings have at least two events, the Nikkah/ Rukhsati and Valima. If you’re in the mood for more festivities, these could be more. Moreover, on the occasion of a wedding, the girl buys party wear to add to her dowry or trousseau, in addition to the party wear clothes that the groom’s side gifts. That being said, one can assume that the Rs 105 billion estimate is significantly small when we talk about the Pakistani formal wear segment. All this, however, is mostly linear fashion. In the past the only instance
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a bride were to give away her bridal dresses were if the wedding was called off or ended. Most of these outfits, despite all that, are usually worn a couple of times in a lifetime. One could supposedly cap it at 5 times.vThis is where the need for circular fashion really comes in considering these dresses could be put to better use and the resources could be utilised more efficiently.
Why it makes sense
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f we exclude the good for the environment bit and talk about blatant consumerism, the availability to rent an outfit is great for people that are brand and image obsessed. For instance, wearing a saree by Sabyasachi is out of the question for a large majority of people at their friend’s wedding for example. The option to rent out might change that. “After the success and popularity of similar global models - the rental model was a no brainer- the initial ideation around rent it started off as a passion project 3 years ago, everything checked out, it made perfect sense - only if we could get past the barrier of the taboo attached to rent it and the sentiments attached to the bridal outfit by highlighting the pros and addressing the cons or concerns i.e. hygiene and authenticity,” says Fatim Gondal, the co-founder of LetsRentIt. For consumers that want to wear Sabysachi to flaunt to their instagram and friends that they are, they can now rent one for Rs 20,000. Vanity purposes fulfilled without having to drive a hole in your pocket and add another saree to your wardrobe that you’d wear maybe four or five times max. Currently, LetsRentIt stocks almost all the major Pakistani brand names from Bunto Kazmi, Elan and Faraz Manan to Kamiar Rokhni and Sana Safinaz. They also have some big names from across the border such as Sabyasachi. Apart from luxury designers they also provide wedding clutches for rent and will soon be expanding into semi precious jewellery as well. They rent out clothes both for the bride and the people attending the wedding. Currently, their most expensive item to rent out is a Bunto Kazmi bridal that rents at Rs 150,000, and their cheapest would be a printed jacket and trouser set from Sania Maskatiya for Rs 5000. “As we all know the fashion industry in Pakistan is largely undocumented and it is hard to come up with an accurate and exact number but according to our in house calculations our approximate addressable market is about 5.2 million women and we aim to grow that number,” Fatim explains, saying that their hope is that the idea will not
just catch on but gain popular support as the right way to do things because of its environmentally friendly tag. And according to the founder, the response has been better than they expected. “When we first started out we expected push back from the market but the response we received and have been receiving as we operate has been astounding. We’re providing designer luxury wear at a fraction of the cost and so the market is definitely opening up to the idea of renting clothes. We always knew Pakistan was uniquely positioned for success with this model in terms of geography, logistics, and controlled costs of dry cleaning and maintainability and repair of outfits. This is true especially when it comes to rentals for wedding wear and event wear,” she says. “The large number of weddings taking place over here and the almost prohibitive cost of luxury designer wear but we never expected the range of people we would end up catering to. From the middle class brides to expat brides to fashionistas who like to wear a new outfit at every event they attend, our clothes have been rented by all.” The concept is an interesting one. For starters, a lot of people that are aware of high-end brands rarely get to wear them because affording it would be too difficult. Renting would be within their range, it would be environmentally friendly, and at the price that they would otherwise get one outfit for a wedding, they will be able to rent multiple outfits for different events and not have to repeat what they are wearing either. Normally, not repeating outfits is a major contributor to the environmental damage fast fashion causes. This is a sustainable way of managing that. Whether it will catch on in Pakistan is another question. On the one hand, Pakistanis can be very picky about the kind of fashion they entertain and clothes are a major topic especially with the ostentatious wedding culture here. On the other hand, the booming success of the earlier mentioned online landas shows that there is a space and demand for sustainable fashion. Globally, we are already seeing the trend move towards circular fashion with a lot of new rental platforms taking off in many parts of the world. We are also seeing big brand names like Burberry and department stores like Harrods and Selfridges also embracing the rental revolution. It is entirely possible that not long from now, we see Pakistan’s industry moving more towards circular fashion as well. In this era where there is an increasing emphasis on sustainability and eco-friendly practises it is the future of all industries, especially as soon as the fashionable elite catch on to the fad. n
FASHION