Issuu

CONTENTS 14

10 Get the vaccine and (maybe) be nicer to CSS officers - this week in Pakistan’s business and economics Twittervers 12 Medialogic and PEMRA go head to head in LHC over forensic audit

14 14 Who owns Pakistan? 20 Outlawed long ago, brick kiln bonded labour continues challenge the national conscience

30 32

The fault in our auditing environment Anonymous

Coffee Wagera - The story of a growing local franchise

Profit

23 Telecard is exploring an IPO for its subsidiary Supernet. Would it do any good? 26 Dewan Cement is struggling. But why? 28 The advertising industry scrambles in wake of Amazon announcement

Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan Abdullah Niazi l Meiryum Ali l Shahab Omer Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) Zulﬁqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: proﬁt@pakistantoday.com.pk

Readers Say Great but I really do wish mainstream financial journalists wouldn’t ignore Microfinance banks when writing about the financial sector and lending. Writing an article on Pakistani banks and default while completely ignoring Microfinance Banks which lend to more people than commercial banks is a glaring omission. Apropos: Pakistani banks don’t lend to the private sector. For good reason Ali Zubair, Website An excellent read, gives food for thought and further research. This is the kind of analytical business journalism missing in other mainstream papers like Dawn, which have unfortunately become cesspools of vested political interests. Readers are smart and have access to more information than ever. In this context, the role of the modern journalist is to curate information, not manipulate it. We see more of the latter in Pakistan, which is why most of the content is either lazy, misleading, or reeks of a partisan bias. Apropos: Pakistani banks don’t lend to the private sector. For good reason A Khan, Website ZTBL is the only specialized Bank in Pakistan in Agri Lending. It is a state owned entity. Few years back ZTBL field staff had powers to arrest chronic defaulters, and the bank was at its profitable peak at that time. In the Mushraf era, the government seized the powers of ZTBL field functionaries, which made them helpless and left only one option to the bank to make recoveries: filling a recovery suit after a long legal process. People consider ZTBL money as government money, and you just can’t recover millions in government money just by requesting that the borrower returns it again and again. That is why the bank’s NPL is increasing day by day. Apropos: Pakistani banks don’t lend to the private sector. For good reason Siraj-ud-Din, Website This is an articulate and well researched piece, but things are changing very quickly. Just very recently the Lahore High Court removed the stay order on selling without court consent. Apropos: Pakistani banks don’t lend to the private sector. For good reason Hamza Siddiqui, Facebook

facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com.pk

HOW TO CONTACT

What an ill researched post. When you default, and even after you have paid the loan after settlement or by paying cost of funds, the name of the defaulter stays in ‘EIB’ (which shows active defaulters) for 12 months after payment is cleared. And the name continues to show for another 10 years, yes you read that right, 10 years. It indicates that this specific person has once defaulted, thus keeping that person out of any institutional borrowing option. If anything, the

banks need to loosen up their tight regulation and lend more to the private sector, like they do in all developed countries So please update your research team and post only verified content. Profit response: Not true. Only overdues (past 90 days and past 365 days separately), any write-offs, amount under litigation & any restructurings are reported and continue to show for 10 years (used to be 15 years). So a forthwith settlement with complete default amount and cost of funds, post default will leave absolutely no trace on ECIB after 12 months. We have double checked this. Apropos: Pakistani banks don’t lend to the private sector. For good reason Fahad Habib, Facebook It's about time. Need to open up the board. Apropos: An activist investor takes Merit Packaging out for a spin Saad A Khan, Facebook Credit risk is the fundamental risk of lending and if bank's blame everyone, except themselves, something does not add up. More often than not, coverage and credit officers do a sloppy job at credit initiation, there is little or no post-disbursal monitoring and once it is apparent that loan is dud, throw their hands up in the air and blame aliens, CIA and freemasons for all social evils. Perhaps, instead of siding with banks, Profit could suggest those banks to go through their approval documents for these loans, identify who dropped the ball and where, and initiate corrective action. The fairy tale that few billion rupee borrowers game the system and take advantage of trillion rupee banks is too good to be true. A bank, if it is worthy of its license, would never lend again to a defaulted borrower, irrespective of credit history, unless gilt edged collateral is provided. If these banks do not understand and control the risks in lending, then we have bigger things to worry about. Apropos: Pakistani banks don’t lend to the private sector. For good reason Durraiz Khan, Email abridged Good shooting Pakistan. This kind of news makes us happy except for you know who….. the opposition, IMF and WB. The European Union already has resolved to take away from us the GSP plus incentive. So, we are praying that your plans are ready, able and willing to keep up the tempo of US$2 billion and more, to further stabilize and consolidate the country’s economy. We wish you well and are ready to help, because we are hardcore Pakistanis who want to see the country establish a format for others to follow. Apropos: Exports cross $2bn for seventh consecutive month. Anonymous, Website

COMMENTS

IN BRIEF For the first time in the 73 years history of the Pakistan Stock Exchange (PSX), a woman chairperson has been elected to the board of directors. In the first meeting of the newly elected PSX Board held on Wednesday, Dr Shamshad was unanimously elected as the PSX board chairperson. US e-commerce giant Amazon has added Pakistan to its approved Seller’ List, Adviser to Prime Minister of Pakistan for Commerce and Investment Abdul Razak Dawood announced on Thursday. The adviser said that they have been engaged with Amazon since last year and that it is a great opportunity for Pakistani youth, SMEs and women entrepreneurs.

New schemes for the small and mediumsized enterprises (SME) sector would accelerate the credit uptake ratio of smaller businesses by approximately up to 30 per cent during three years. Reza Baqir, Governor SBP

The All Pakistan Anjuman-e-Tajiran (APAT) on Monday rejected prolonged Eid holidays and lockdown from May 8 to 17, announcing that they would keep shops open till chand raat. He asked the government to stop the flag march, stop harassing traders and allow them to keep their shops open till 12am on Chand Raat to reduce rush due to limited hours.

Habib Bank Limited (HBL) has become the first bank to enable PayPak e-commerce acceptance on its Internet Payment Gateway (IPG), which currently services over 400+ e-commerce merchants. The move will allow PayPak card holders to securely perform transactions with e-commerce merchants via HBL and shop online.

Finance Minister Shaukat Tarin has said that Pakistan had informed the International Monetary Fund (IMF) that increasing taxes or tariffs was currently unfeasible under the IMF programme, adding that Prime Minister Imran Khan is against a tariff hike.

10 billion:

The country’s external debt servicing will remain over $10 billion a year for the next two years, as the government weighs its debt-related foreign inflows position to meet the mounting foreign obligations that keeps it dependent on global lenders.

Get the vaccine and (maybe) be nicer to CSS officers this week in Pakistan’s business and economics twitterverse

he week was dominated by CSS officers (both of the DMG and the Foreign Services persuasion) complaining about how mean everyone is to them. For the sake of the Twitter followings of all these ACs, we will not say much about the whole episode, particularly beaus other things were going on as well including some interesting offers from Waqar Zaka, the impact of Zakat, and tackling vaccine hesitancy.

Profit’s Ariba Shahid brings all this and more to you in this week’s social media roundup

Beyond Zakat

Foreign service joins the disgruntled

This week was not good for Assistant commissioners and ambassadors. Why? Well, they were critiqued. They came out in defense of how their lifestyle suffers so that they can help the public only to be reminded of their countless perks and privileges. This reporter is hoping they wish to exchange privileges. Without getting into the specifics, let’s just say that “our morale has been affected” is not an endearing response to criticism, warranted or unwarranted.

PSA: Get vaccinated

In the absence of a true welfare state, Zakat has your back as an informal means to address inequality. Gulraiz Khan reminds us in this month of Ramzan how despite it being a safety net, it does not make up for public welfare and taxing the rich. The state still has a responsibility, and no, deducting Zakat from your bank account is just not enough.

Dr Aadil Nakhoda reminds us that while Pakistan can be critiqued for not ordering a lot of vaccines, there is no shortage yet, and eligible people are able to get vaccinated easily. He also reminds us that the supply is regular and isn’t depleting. However, we are concerned about what happens when mass vaccination opens up.

Living on the edge

PSA part 2: Please get vaccinated

The late Khadim Hussain Rizvi had a strategy to deal with our external account deficit. He suggested we pay off countries when we can and that too without interest. He went on to say that if any country objected, we could use Ghauri to scare them off. While that is an idea (good or bad we’ll let you decide), Waqar Zaka has jumped into the fray with a unique idea of his own. He claims he can pay off Pakistan’s debt by using crypto. His only condition is that he is allowed to run the country. By the looks of how Zaka has been able to get thousands of people to join his crypto group, one could say that he might be able to bring about more tax collection too. But I doubt anyone wants to live on the edge with Zaka as PM.

This is a public service message by Profit and Umar Saif. Get vaccinated, you may get the virus but you won’t die! And you might possibly save the lives of everyone around you. Don’t worry about which one you get, just get it.

Youtube royalty

In the age of influencers and monetization of social media, it does not come as a surprise that the royal family are ready to earn off Youtube. Reminds us of a time when the recently late Duke of Edinghburg let the BBC record a documentary about how royals live to prove they need more money. That experiment did not go very well as far as public opinion was concerned, but it was one of the many moves that helped propel the royals into the new age. Is this another media baptism? Maybe Kate and William are in a crunch and trying to do the same while earning a quick buck?

CSS tears

Firdaus apa vs Assistant Commissioners was a common theme on twitter this week. One thing is for sure, CSS officers definitely need a lesson in PR. Asra, or @Freakonomist5, reminds us how we are to keep check of the colonial mindset that comes with the job and fix the system through a reform. But hey, this doesn’t mean we don’t need a check on Firdaus apa and her clan. There must in all ernest be a balance that the government has failed to find across regimes. Publicly humiliating government officers was a very Shehbaz Sharif move, and you cannot expect to humiliate officers publicly. Yes, the babus need to be less babu-ish, but even their dignity does matter.

SOCIAL MEDIA ROUNDUP

The mystery behind Pakistan’s abysmal ranking in the ease of doing business index continues By Babar Khan Javed

edialogic and Salman Danish are once again bouncing around the courthouses, this time in a bid to somehow try and stop PEMRA from conducting a forensic audit of its research methodology and subsequent findings. What is Medialogic? It is an overnight rating provider led by its founder and CEO Salman Danish. With a sample size of what they claim is a carefully selected 2,000 households, it provides advertisers with data such as what age, gender, and other demographic are watching what and at what time – allowing advertisers to optimize their buying of media. This means Medialogic is the company that provides television ratings, those sacred numbers that media executives cherish and

hold high above all else. The only problem is, surprise surprise, their accuracy in Pakistan has been highly doubtful. So how did things come to this, and what new trouble has Medialogic gotten itself into?

Medialogic’s background

Of the whopping Rs 310 billion a year advertising pie that exists in Pakistan, a significant chunk of Rs 100.75 billion is spent on television ads, according to estimates provided to Profit by media buying professionals at the respective regional headquarters for WPP and the Publicis Groupe. And with hundreds of channels to choose from, companies have a tough time figuring out what slot of airtime they should pick to push their product to best reach their target demographic. This is the job that Medialogic does, and for a very long time, they had a virtual monop-

oly over the business. In the early 2000s, when television and cable were really taking off in Pakistan, the Pakistan Advertisers Society (PAS) approached a number of companies including AC Nielsen Pakistan and Kantar to take on the role of providing television ratings for Pakistani channels. When both companies refused on the grounds of not trusting the market, Salman Danish created Medialogic and filled in the gap. For decades Medialogic continued to provide television ratings, and increased its sample size from 500 to 2000, and also tried to improve the technology they were using. While the sample size was still very small compared to standards in the rest of the world, everyone went to Medialogic for rating. But things started to go south in 2015 when a serious row between Medialogic and the Express group brought out the dirty secrets of the advertising industry in Pakistan for the first time.

Court cases

ack in 2015, Salman Danish had accused the Express Media Group of bribing MediaLogic employees to manipulate and get more favorable ratings for their television shows. Express responded by claiming that Danish was trying to extort Rs450 million from them and accusing the rating provider of a wide range of illicit activities, including but not limited to kidnapping, ransom, and blackmail. The Express group would only be the first media house to claim that Medialogic was providing doctored ratings. In September 2018, an allegation was made by BOL TV in 2018, which alleged that Medialogic favors channels of Hum, ARY, and Geo (HAG) over all others, making its case by pointing out that despite the lack of original programming and the saturation of airing dated content on its entertainment channels, HAG secured the top three positions throughout the year. In September 2018, a three-member bench led by former Chief Justice of Pakistan Saqib Nisar announced that TAM ratings would from then onwards come through regulatory body PEMRA. As a measure to curb malpractice in the issuance of ratings, the SC ordered rating agencies to provide the viewership data they collect to PEMRA, which would then display the data on its website and use it to assign ratings independently. During the trial, in typical Saqib Nisar fashion, the powerful Salman Danish was paraded in front of the court, handed a contempt notice, threatened with the forensic audit and closure of his company, and publicly berated like a petulant child. And after all that posturing, he was let off scot-free. The only concession that had to be made was that ratings would now go through PEMRA and would not be directly released by Medialogic or other rating providers.

Enter PEMRA, and enter new cases

n Wednesday, the 27th of April 2021, a hearing was held at the Lahore High Court (LHC) for case number CM/2/27839/21 titled “Medialogic Pakistan (Private) Limited through Salman Danish Naseer Vs PEMRA through its Chairman, etc” as seen on the LHC database. Sources close to the media regulator told Profit that the LHC has issued a stay order which bars PEMRA from moving forward with the forensic audit until the next hearing. The media regulator made the decision to conduct the audit in January 2021 after an entertainment satellite channel filed a complaint citing rating manipulation against Medialogic in August 2020. The complaint was the same

Back in 2015, Salman Danish had accused the Express Media Group of bribing MediaLogic employees to manipulate and get more favorable ratings for their television shows. Express responded by claiming that Danish was trying to extort Rs450 million from them and accusing the rating provider of a wide range of illicit activities, including but not limited to kidnapping, ransom, and blackmail old complaint that Bol and Express had made about manipulations in the ratings. Since PEMRA is now responsible for issuing the ratings, they decided to conduct the audit. According to the PEMRA TAM regulations 2018, which were created after BOL TV made similar allegations against Medialogic that year when a channel wants to challenge the rankings tabulated by Medialogic, it must first submit its complaint to the rating service itself. The regulation further stipulates that if the complaint is not redressed in seven days by the TAM service, it goes to an Appellate Forum, which consists of executives selected by the PEMRA chairman from the operations and licensing teams from a broadcast media provider, a legal wing, and two representatives from the Pakistan Advertisers Society (PAS). According to an October 2020 letter from PEMRA, the Appellate Forum consists of English Biscuit Manufacturers managing director Dr. Zeelaf Munir and Jazz chief commercial officer Asif Aziz who collectively represent PAS while three members from PEMRA are also present. Sources close to the media regulator claimed that Dr. Munir was the most vocal member of the Appellate Forum and was interested to set up a deep drill audit on Medialogic while her peers resisted for reasons unknown. A spokesperson for English Biscuit Manufacturers told Profit that Dr. Munir was not available to comment. However, she told Profit that Dr. Munir was not present on the day of the meeting. The joint industry regulatory committee (JIRC) created by PEMRA is responsible for conducting an establishment survey, a performance audit through any third party, and additional tasks that ensure transparency. According to the TAM regulations 2018, the nominees of PEMRA and PAS for the Appellate Forum cannot be members of the JIRC and vice versa. According to the regulations, the JIRC is led by an independent chairman that has been nominated by its members, which can comprise advertisers, broadcasters, media agencies, and PEMRA. The Appellate Forum is

meant to dispose of complaints in 30 days and hears the complaints against the decisions of the JIRC. According to a notification from November 2020, the JIRC comprises GroupM CEO Naveed Asghar, Starcom chairman Raihan Ali Merchant, Pakistan Television Corporation (PTV) chief marketing officer Khawar Azhar, including three members each from PAS and PEMRA, and two members from the Pakistan Broadcasters Association (PBA). On paper, Medialogic competes with four other PEMRA approved rating agencies namely MediaVoir, Din Industries Limited, Breeo International, and The Media Trackers, the former of which was outed by Profit as being owned by Labaik Pvt Limited, the parent company to a diploma mill and BOL TV. Given that PAS has purportedly directed its members to only consider the ratings provided by Medialogic as currency, advertisers and media agencies do not seek alternative data from the other four, effectively creating a monopoly for Medialogic. Industry insiders told Profi that HAG exercises significant influence over Medialogic, which the TAM service denies. The alleged relationship between HAG and Medialogic is mirrored with the walled gardens that media agencies deal with on a daily basis, with Facebook and Google self-reporting their audience data without any independent verification. Furthermore, these walled gardens self-report the reach of campaigns, giving advertisers no choice but to accept the data. “With Pakistan ranked in the 108th place on the 2020 ease of doing business index, it’s not a mystery why a complaint that should have taken under 45 days to resolve under PEMRA’s own regulations has now crossed the tenth month as of May 2021,” said a retired WPP executive. “That and the irony that a rating service can stop its regulator from conducting a forensic audit, which is a practice that by its business model the TAM does regularly.” A representative from Medialogic told Profit that they could not comment on any investigation that PEMRA may be conducting. n

ADVERTISING

COVER STORY

By Farooq Tirmizi

ne of the most searched topics on Pakistan’s economy is the “richest Pakistanis” list: some form of authentic measure of just who are the richest people in Pakistan and exactly how rich are they? Catering to this demand are a series of webpages that look like they have not been updated since 1998, some of which have some useful information, but most of which appear to be filled with rectally derived statistics. We do not wish to keep you in suspense. This story is not Profit’s attempt at creating that list. That is a project that is ongoing (and has been for at least three years) and believe us when we tell you: when we pull it off, we have no intention of being subtle about it. No, this story is an examination of who owns the largest companies in Pakistan and derived in large part from a study conducted by Nadeemul Haque and Amin Hussain at Pakistan Institute of Development Economics (PIDE). Haque, as readers of Profit would know, is currently the vice chancellor of PIDE and an economist with a longstanding career in both the International Monetary Fund (IMF) and the government of Pakistan. Hussain is an economics doctoral student at Uppsala University in Sweden. What they find in their study is fascinating: most Pakistani publicly listed companies are either owned by the government, multinational corporations, or by a small network of 31 families, most of whom exercise relatively tight control over what are ostensibly supposed to

be public companies. In this story, we at Profit will lay out some insights from that study – who are the biggest owners of businesses in Pakistan, and how tightly do they exercise control – but we will also go one step further. We will highlight how the structure of ownership has changed over time, and what that means for the nature of wealth creation in Pakistan today. We will also lay out our own case for why our interpretation of the data is perhaps more optimistic than that of the authors of the study. But most importantly, perhaps, we will lay out the evidence behind our biggest assertion: that the wealthiest families and entities in Pakistan today are all owners of legacy businesses, and that the future of wealth creation will come from industries entirely different from the ones that account for the great Pakistani fortunes of today. Those among the current crop of wealthy families who see this, and decide to make the pivot will continue to be on this list 20 years from now. Those who do not will vanish like the more than twothirds of the infamous Ayub-era 22 families. A note on methodology (feel free to skip) The study undertaken by Haque and Hussain is a point-in-time snapshot of who owned shares in publicly listed companies in the Pakistan Stock Exchange. For this, they examined the companies that comprised the benchmark KSE-100 index as of 2018, and used what appears to be annual report data on shareholding patterns from that time. While the companies that comprise the KSE-100 index do not constitute the entirety of the universe of publicly listed companies, they do account for the largest ones and collective-

ly constitute more than 80% of the market capitalization of all companies listed on the exchange. Our biggest critique of their methodology is that use of annual report data rather than a more exhaustive list of shareholders that could be obtained from the Central Depository Company of Pakistan (CDC) or other share registrars. Using the latter source might have uncovered even more patterns than they were able to find using annual report disclosures. Nevertheless, what they have put together is still very impressive. One other minor critique: companies do not have annual reports issued at the same time since many companies have different financial years, with some running from July through June (most energy and textile companies), and others running from January through December (most financial institutions and multinationals), and still others running from October through September (sugar mills). That makes the point-in-time analysis of shareholding patterns slightly asynchronous. This is a minor defect, however, and one unlikely to substantially change the result since shareholding patterns do not materially change over the course of one year (though they do over several years). We would argue that an intertemporal analysis would have been even better (and certainly one we plan on conducting ourselves in the future), but this is probably too nitpicky on our part. The broader insights offered by the study are fascinating, and we will now present them below.

Who owns what?

ou would not know it from the headlines, but the single biggest category of owners of shares on the Pakistan Stock Exchange are small investors, who collectively own 27% of the value of companies listed on the PSX. The category that the authors of the study list as “small investors” largely consists of mutual funds, and other institutional investors that rely on retail investors for the bulk of the capital they have available to invest. The study has a second category called “individual investors”, which is somewhat of a mixed bag, since it includes people who are on the boards of directors and managing shareholders. (This is where using the CDC and share registrar data would have helped disaggregate the data into more relevant categories.) Shareholders in this category own about 6% of the total value of shares listed on the exchange. The second largest are multinationals whose subsidiaries are locally publicly listed (21%), followed by the government of Pakistan (14%). All of these categories are dwarfed by

the local shareholders who own publicly listed companies through other types of holding companies. The Haque-Hussain study breaks this out into four subcategories, but collectively they control about 28% of the market cap of the KSE-100 companies. The subcategories are locally incorporated holding companies (4%), foreign incorporated holding companies (not multinationals, but local groups that simply have a foreign holding company, 7%), other KSE-100 companies (7%), and local businesses (which often consists of unincorporated groups, 10%). Employee shares, provincial governments, foreign companies (not majority shareholders), and the National Investment Trust (NIT) round out the rest. What does this data tell us? Mainly that the vast majority of shares are clearly owned by the controlling stakeholders. This is consistent with the fact that the free-float of the Pakistan Stock Exchange – the proportion of shares available for trading on any given day, that are not locked up by the long-term owners – is approximately 30% of the total market capitalization of the PSX. In essence, the controlling shareholders want to maintain as much control as possible while still getting the advantages of being publicly listed. This, by the way, is often portrayed as a problem of Pakistani family businesses wanting to remain in control of family businesses, but the truth is that the Government of Pakistan and multinationals sell even less of a share of their companies than local business families. The problem, in short, is not seth culture, but the general control freak nature of people doing business in Pakistan. More importantly, the seths are actually smaller and less powerful in terms of absolute economic value of their companies than they appear in discussions about Pakistan’s political economy. Compile the list of shareholders by entity, and the top 10 is absolutely dominated by the government and multinational corporations and investors. Only two of the top 10 are local business entities: Ibrahim Holdings, and the Engro Corporation.

This, by the way, is not at all to suggest that Pakistani oligarchs do not have outsize power and that the rules governing Pakistan’s economy are somehow fair. Large business groups in Pakistan absolutely do have a lot of influence on government policy – too much, in our view – and the rules are rigged in their favour. But what we believe the data highlights is this: it does not take a lot of money to become an oligarch in Pakistan. You most certainly do not need to be a billionaire in US dollars. In other words, the Pakistani establishment can be bought on the cheap and made

The seths are actually smaller and less powerful in terms of absolute economic value of their companies than they appear in discussions about Pakistan’s political economy. Compile the list of shareholders by entity, and the top 10 is absolutely dominated by the government and multinational corporations and investors. Only two of the top 10 are local business entities: Ibrahim Holdings, and the Engro Corporation

to do your bidding, all for a trifling amount of money. How else does one explain the extraordinary lengths to which the government goes to protect the interests of businesses that are – by global, and even regional standards – medium-sized businesses at best?

Changing nature of ownership on the PSX

hat is especially interesting about the study conducted by PIDE is how different the 2018 data looks from the 2008 data. While we at Profit do not have as exhaustive a documentation of the ownership structure of the PSX from that era (at least not yet), we do have some data points that indicate how much things have changed, and have important implications for the direction of change. The single most important factor is the government’s diminished role as a dominant shareholder on the PSX. Back in 2008, more than 35% of the market capitalization of the then-Karachi Stock Exchange was owned by the Government of Pakistan. About 20% of that was the government’s shares in the Oil & Gas Development Company (OGDC) alone. Ten years later, the proportion of the

COVER STORY

country’s publicly listed companies owned by the government is two-thirds lower than it was back then. How did that happen? Two privatization transactions helped, to be sure, but the bigger culprit is the fact that the government of Pakistan’s businesses grew a lot slower than the rest of the market, which meant that their share of the overall market capitalization declined because the other companies grew faster. Why did the government’s share decline? Because the Government of Pakistan is much more interested in the cash flows from its portfolio companies’ dividends than it is in allowing those companies to reinvest their cash flows into growth-oriented projects. That, and the government’s biggest holdings are in industries in decline. Domestic oil and gas reserves are declining, which means that OGDC and Pakistan Petroleum (PPL), for instance, will be worth less in the future than they are today. OGDC and PPL still account for a large plurality of the government’s share of publicly listed companies. Then there are the foreign companies, which together account for over one-fifth of the market currently. This share is only slightly higher than it was in 2008, but what makes it extraordinary is the fact that it continues to be so high despite the delisting of Unilever Pakistan from the stock exchange. Before it delisted, Unilever was one of the largest publicly listed companies on the KSE. On a like-for-like basis (meaning, excluding Unilever from the 2008 calculations), multinationals have grown their share by more than a third. That means that multinationals have grown faster than the rest of the market. How does that happen? Well, yes, it is true that multinational corporations have access to both larger amounts of capital and a lower cost of capital than most local conglomerates – even the largest ones – but a bigger explanation for their dominance is likely the fact that the most talented Pakistanis prefer working for a multinational employer over a local one. Winning the race for talent likely allows them to come up with better ideas for their businesses and thus grow faster than their local rivals.

Little overlap in the “31 families” and the “22 families”

o say that Pakistan’s economy was dominated by 22 families in the Ayub era and is now dominated by 31 families – as most news coverage of this study have done – is to imply that the club of 22 remained intact and grew slightly larger. Nothing could be further from the truth. Only five of the original 22 families – the Habibs, the Dawoods, the Saigols, the Babar Ali family, and the Bhimjees – are part of this club of 31 families in the current era. The rest

If share of total wealth, or ranking among the wealthiest, are the metrics being used to assess great fortunes – then having an old cement factor or textile factory will not be enough. The business that makes you your money will have to have a transformative impact on the economy if you hope to retain your position at the top of the Pakistani economic pyramid 18

of the 22 families are not exactly poor, but today their descendants tend to be on the upper end of upper middle class rather than the wealthy captains of industry that they were in the 1960s. The rest of the 31, on the other hand, are those who were upper middle class in the 1960s – or even lower in some cases – and rose up through either entrepreneurial ambition, or proximity to powerful politicians, or both. This is very important to note because what it means is that wealth in Pakistan is not something static that simply gets passed down from generation to generation, and that some can rise while others can fall. We would like to claim that this is due to the normal course of a market economy, but the truth is that in Pakistan, this upheaval took place in large part due to Zulfikar Ali Bhutto’s nationalization drive in the 1970s and its aftermath in the 1980s. Not everyone can trace their wealth to that upheaval, of course. Jahangir Siddiqui, for instance, made his money entirely independent of any government intervention. But most of the 22 who are no longer in this club lost their wealth due to government expropriation, and at least some of those who gained it were ones who were the beneficiaries of the government selling

TEXTILES

those assets back to the private sector on the cheap after having destroyed them for over a decade and a half. Those on the left of the political spectrum (Kaiser Bengali, I am looking at you) would argue that this data point proves that nationalization was a good thing and that privatization should never have taken place. We, quite obviously, disagree and would point to the fact that functionally, Pakistan deactivated its industrial base for over two decades (1977 through roughly the start of the Musharraf era) before it was able to get back up the levels of industrial activity last seen in the 1960s. Was that a price worth paying? Surely, a better taxation policy would have sufficed in addressing the inequity. And, much more importantly, the nature of wealth creation in Pakistan is about to change and make it more diffuse. The oligarchs of old will either have to adapt or else watch their fortunes wither on the vine as a newer generation of entrepreneurs scales the commanding heights of wealth in Pakistan.

Golden handcuffs

he key defining feature of the fortunes of the richest Pakistanis today is how much they are industries of the past. There is not a single fortune made in the technology sector, for instance, and most of the companies do business that is not too dissimilar from the kind of companies that existed a century ago. Cement, sugar, banking, insurance. You could go back 100 years and there would be companies that were in those business lines. There is nothing inherently wrong with these kinds of businesses, of course. But if the last decade has taught us anything, it is that there is no faster and better way to make money than to transform what the world around you looks like. That often means the technology industry. While working in analog industries was enough to make a fortune in the past, whether or not it will be enough in the future is an open question. The fortunes of those today, by and large, require good relations with the government (and by extension, politicians and the Army) even if political connections did not play a role in the creation of those fortunes. That makes the current system inherently closed off to outsiders and challengers. Technology – particularly software – is different. Anyone with an internet connection and the ability to read and understand basic mathematics has the potential to be able to learn how to write code and create a business that could become incredibly valuable. That completely changes the barriers to entry on making a great fortune. It also means that – if share of total

wealth, or ranking among the wealthiest, are the metrics being used to assess great fortunes – then having an old cement factor or textile factory will not be enough. The business that makes you your money will have to have a transformative impact on the economy if you hope to retain your position at the top of the Pakistani economic pyramid. Put differently, who would you rather be: Muneeb Maayr (founder of Bykea) or Mian Mansha (chairman of MCB Bank)? This is not to suggest remotely that the current economic elite is not investing in the future. After all, two of Pakistan’s largest venture capital funds are at least partly sponsored by family businesses: Lakson Ventures (the Lakhanis) and Fatima Gobi Ventures (partly invested in by the Mukhtar family). These funds are investing in some of the most innovative companies in Pakistan, and the families backing these funds will likely retain their place in the pantheon of the Pakistani economic elite. But for many others, the temptation will be to stick with the companies and businesses that they know, especially since those businesses continue to yield massive amounts of cash flow that allow them to lead incredibly comfortable lives. When the world is going

your way, it is very difficult to see that it is about to turn against you. Having a great fortune now can be a pair of golden handcuffs, chaining the owner of that fortune to the means that got them there. Only a handful of people have ever been able to pivot away from the business that generates surefire cash and take the risk towards a completely new set of technology and business with much greater risks and much greater chance of failure. The odds are that the list of the richest Pakistanis will look very different over the next 20 years, with more and more people who have made their money in technology, and fewer people who own old-school businesses. Looking at a list of great fortunes of today, in short, is a bit like looking at the stars: you are seeing the brilliance that originated long ago. It is a snapshot of the past, and tells you little about the future. To find that view, you have to look at something far more ephemeral. Thirty-one families may dominate the economy today, but that dominance is hardly indicative of an ongoing problem, merely a reflection of one we had in the past. The future could look like something else entirely. n

COVER STORY

By Shahab Omer

ook around you, whether you are sitting in your homes, or offices, or out on the road. Every wall, and every towering structure from the houses of parliament to every roadside footpath, and every garden boundary are made of bricks. Hundreds of millions of these small red blocks of baked mud that have been around since 700BC make up the cities that we live in. Not to far away from the comfort and security of the homes we build with these bricks, on the outskirts of major cities like Lahore, an insidious system of modern age slavery makes sure that a steady supply continues to stream into our cities. Bonded labour was outlawed in Pakistan years ago, despite which men, women, and children continue to be trapped in a vicious cycle that

engulfs the lives of generations. An Al Jazeera report from 2019 estimated that in the 20,000 brick kilns that exist in Pakistan, there are 4.5 million employees, most of whom are trapped in debt bondage. There are at least 3.1 million workers that are trapped in debt bondage for sure, and nearly a million of them are children under the age of 16. At the brick kilns, they are supposed to be paid Rs 960 a day for which they are supposed to produce 1000 bricks a day. If they produce fewer bricks, they get less money. Conditions at these kilns are harrowing, with the mud mixture that is used to produce bricks giving workers skin diseases, and coal giving them pulmonary problems. Most of the workers are there because they have no other choice, with the owners of these kilns using techniques ranging from terror, law enforcement, and chains, to keeping the children of workers hostages to ensure the workers are unable to escape the

debt trap. Their continued suffering should be a moral burden on the conscience of the entire nation. And while the biggest example of bonded labour in Pakistan is in brick kilns, this system of slavery exists outside of the kilns as well. In agricultural fields as harvesters and in large houses in posh areas as domestic help - bonded labour has trapped millions of families whose plight continues to be ignored, and whose labour all of us continue to benefit from. For years, the Bonded Labour Liberation Front has been doing fine work in helping workers get out of this illegal debt bondage, but in the past couple of years, the Punjab government through the Punjab Labour & Human Resource Department (PL&HRD) has undertaken projects to remove this scourge from the province. How successful have they been, and how long will it be until we can rid ourselves of this evil?

The terms of the oral, interlinked labour credit contract are heavily biased in favour of the lender and this is being done since ages to exploit the poor. To meet the daily needs and family demands, the worker is forced to borrow additional cash and the amount is amplified and doubled Ansar Majeed Khan Niazi, the labour minister of Punjab

How it happens

ow bonded labourers become bonded labourers is always a story of desperation. On the outskirts of cities and in rural areas, it is not a profession that one aspires to. It is a dreaded field of work, and one that snaffles you not just for your own life but for the entire lives of your children and their children. It begins with a moment of desperation. A woman has been widowed and there is no one to work and bring home the money for the children. A man has nothing saved up for the marriage of his daughter. A brother has no money to arrange medicine for his siblings. So they go to the brick kiln and they ask for a loan. The amount is usually paltry, but it is enough for them to be trapped. In exchange for the loan, you begin working at the kiln, and this is where the exploitative practices begin. “Bonded labor means depriving a person of all basic rights, including freedom of movement and association, personal freedom, liberty or freedom of business / profession, freedom of expression and the right to equality among citizens,” explains Ansar Majeed Khan Niazi, the labour minister of Punjab. “People under hard circumstances agreed to bonded labour and sometimes it is passed on from one generation to the other, depending upon what terms the forefathers agreed upon with the employer. The educated and elite social circle is also found involved in this practice where they have servants and labour working for them on lesser wages or as bonded labour.” “To pay back this debt, the labor has to offer their basic freedom and services to the employers. According to Article 3 of the Constitution of Pakistan, it is the responsibility of the state to ensure the eradication of all forms of mistreatment and the plodding fulfillment of the basic principle that everyone will be rewarded according to his ability and according to his work.” One labour director of Punjab Labour & Human Resource Department (PL&HRD), speaking on the condition of anonymity, believed that forced labour, primarily in the form

of debt bondage, is commonly seen amongst low castes and social classes, minorities and migrants who suffer from additional discrimination and social segregation and they are the ones who are victimized. “In the case of brick-kiln, usually an adult man, takes a loan or salary in advance from the employer. This loan is sometimes for the marriage of a daughter, meeting the needs of the house and family or some other crisis the person faces,” explains minister Niazi. “As a result the debtor, and in many cases their family members as well, are obligated to work for the employer for no wages at all or reduced wages until the debt is repaid.” This exploitative system does not even end with death, and at times a loan taken by a father is inherited by his children. “The terms of the oral, interlinked labour credit contract are heavily biased in favour of the lender and this is being done since ages to exploit the poor. To meet the daily needs and family demands, the worker is forced to borrow additional cash and the amount is amplified and doubled,” he explains. “When there are larger debts, these strengthen the employer’s control to such an extent that the basic freedom including the freedom of expression, association, movement, and to undertake alternative employment is denied by the employer and there is no way of escape for the labour.” In some of the worst cases. the workers are imprisoned and dealt with violence or threats of vehemence. They are often chained and beaten and left without food or drink. Further, it is a routine that females in lower income groups and classes are kept away from decision making and neither are they made a part of the discussion, so finally they have to agree to all the terms and conditions which their men agreed to with the employers. This makes them bonded labour and their children too,” Niazi further added.

Here comes a project

ith all this going on, a director of the PL&HRD told Profit that the Government of Punjab is on a mission of

eradicating bonded labour and in order to exterminate the bonded labour from the society, the PL&HRD undertook a six years project (2012-18). Now, the PL&HRD through its Annual Development Programme has launched a project called the ‘Elimination of Bonded Labour in 4 Districts of Punjab (EBLIK-4D)’ in 2012-2020 at the cost of Rs 196.836 million in four districts of Punjab, namely, Faisalabad, Gujarat, Sargodha & Bahawalpur. “The project was proposed to be extended till June 2020 for Elimination of Bonded Labour in the Brick-Kilns of four districts of Punjab, namely, Sargodha, Faisalabad, Gujrat, Bahawalpur, Districts in order to duplicate the interventions of similar project being implemented in Lahore and Kasur districts.” He further explained to Profit that in the past development funds had been allocated to address the vital issue of bonded labour and to cater the social and economic needs of vulnerable groups of population. “Based on the impact assessment of the EBLIK project being implemented in Lahore and Kasur districts, stakeholders consultation and a wide-ranging review of the existing literature on bonded labour in the brick-kiln sector in Pakistan, the project proposed a set of activities that were necessary to eliminate debt-bondage in the brick kiln of the four selected districts of Pakistan.” The project was started by the PL&HR Department during the period 2012-20 but was delayed recently due to the Covid-19 pandemic. The project included ways and means to improve brick-kiln workers’ access to social services, legal recourse and to improve the health and hygiene of brick kiln workers. Although the scope of the Elimination of Bonded Labour in Brick-Kilns (EBLIK-4D) Project was limited to brick kilns in the selected districts, the interventions were possibly replicable to other districts and sectors as well. Speaking about the project components, the director mentioned that there were a set of thirteen interventions which included, provision of non-formal education to children of families at brick kilns and adult literacy for other family members, promotion of health

LABOUR

and hygiene services among the brick kiln workers (women/men), and health Screening Camps for brick workers and their family members. Veterinary services, facilitation in acquiring CNICs for adults, and birth registration of children, as well as the provision of legal services to the brick kiln workers are also included in all these services. “Political will to block and ban the concept of bonded labour has been growing over past and recent years whereas the successive governments have also legislated against various types of bonded labourers,” director said. For years, one of the major problems has been that politicians have either owned or had stakes in many of these brick kilns practicing bonded labour. Now, however, there seems to be more willingness to take the issue on despite political pressure not to bring it up. The implementation of these laws posed a serious challenge to the state’s institutions. On the other hand, many civil society organizations have also worked and generated awareness in this regard and made it public that bonded labour should be stopped. “The capacity and scale of activities of the nonprofit and civil society organizations is limited as they have their own resources and sometimes agendas, therefore they can also not play a pivotal role in the awareness. Many civil societies in the past and till today are trying to fight against this dilemma but their scale and scope is limited,” says the director. “All they do is create awareness among the elites and the locals of the area but have no solid outcomes. It has to be done at the government level and media. The International Labour Organization (ILO) has been an important partner in public sector and non-profit initiatives. In addition to the localized and small-scale public/private/international initiatives, it is essential that the government, NGOs and ILO work in partnership for a concerted effort for the prevention and elimination of bonded labour in Pakistan,” he commented on the role of civil society organizations.”

The scale of the project

he labour minister says that according to registration data of the PL&HRD, the number of registered brick kilns in the target districts is 479 in Gujrat, 319 in Sargodha, Faisalabad 485, Bahawalpur 400, with the total number adding up to 1683. However, the director PL&HRD believed that the kilns varied in sizes according to their production capacity and working while depending upon that the number of labour is decided. “On an average it can be estimated that

a kiln in the mentioned districts employs 10 families on an average at one kiln,” he added. He further explained that the average work force of five persons, which includes two adults and three children per family, the average work force on one kiln is about 100 persons. “If you visit a kiln, you will see families working there and all age groups are seen. There are cases where there are more children than adults in a family. This is balanced by those workers who do not have any families. There are approximately 16830 families at the kilns and the total number of workers comes out to be around 84150 persons. This number also includes the females and children of the families,” he said. There are different categories of work that are done in the kilns. Most of the men are responsible for the dangerous work of putting and removing the bricks from the oven in which they are baked. The women and the children are usually given the work of packing the mud into the brick moulds. However, most of the families work in units, and their wages are clubbed together in the name of the head of the family. This clubbing of wages is actually the root cause of extreme forms of exploitation practiced in the kilns. The wages are clearly less than the rate notified by the Government of Punjab as well as the market rate for semiskilled labour. “Calculations of market rate reveal a higher degree of exploitation in these kilns and that is unfair with the people working there. This is the height of exploitation by the employers and it should be curbed. Presently, the market rate for semi-skilled labour on daily wages is RS 400- 500 per person and that for unskilled labour is RS 300 per person. If we assume the rate for a female worker to be 2/3rd of the market rate, and that for children to be 1⁄2, the wages per day for a family of 5 having one adult male, one adult female and three 3 children of various ages, would be RS 1050 per day. We are assuming here that the adult male is a semi-skilled worker and the adult female and the minor children are unskilled workers. The above calculations show the scale of exploitation which debt bondage at brick kilns leads to. That a family accepts the lower rate of RS 300-350 per family per day whereas each family would make around 1000 – 1200 bricks on a good day on average, this speaks volumes of the exploitation,” said the department director. The official also added that a research study on the ‘Nature and dimensions of bonded labour in brick was also conducted with the support of the Social Work Department, University of Punjab Lahore. Research reports could not be published due to the closure of the universities on account of COVID-19 and lock down in the country. External verifica-

tion of brick kilns for elimination of bonded labour was also to be done but had to be postponed due to COVID-19 and lock down in the country all the activities of the project were stopped. The official, while talking about the objectives of the project and commenting on the development of online database (MIS) and Geo tagging of the brick kilns, said, that the development of MIS database is under process but could not be completed due to lockdown in the country on account of COVID-19. “Till the submission of PC-IV and for completion of the activity project management had requested the administrative Department for extension in gestation period but extension was not permitted.” The project is also playing an essential role in informing the brick kilns community to eradicate the bonded labour from four target districts of Punjab. “The Labour & HR Department is providing the information to various national & international agencies on addressing the bonded labour subject in the province,” he said. “The brick kilns community would be sensitized through conducting awareness sessions, multi stakeholders dialogues and linkages with social safety networks. The role District Vigilance Committees will be further strengthening to address the bonded labour matter at district level in Punjab. It is also recommended that indicators should be verifiable for provision of health and hygiene services, veterinary services for smooth implementation, monitoring and evaluation of such interventions otherwise the labour would keep on suffering.” “It is further recommended that PL&HRD may strengthen liaison and improve its harmonization with other government departments to establish connection between brick kiln workers & families with the nearby accessible social services and facilities of the Livestock & Dairy Development Department. An effective, efficient and gender sensitive social mobilization strategy for mobilizing communities at brick kilns was also needed to help monitor the project interventions and issues related to bonded labour. Up until now, however, the project has not achieved its goals. According to Niazi, the main reason for this has been Covid-19. This is an unsatisfactory explanation, especially since the construction industry has been active this entire pandemic and brick kilns have continued to operate. It should also be a better time to get these workers out of bondage. “Our government’s priority is to eliminate bonded labor and introduce labor-friendly policies. In this regard, we have increased the monthly wages of workers from 17,500 to 19,500 with effect from July 1 this year. The wage has been fixed at RS 750,” he concluded. n

LABOUR

Telecard is exploring an IPO for its subsidiary Supernet.

Would it do any good? A company based on innovation, with the passage of time, it has slowly become a relic of the past

By Taimoor Hassan

akistan’s telecommunications industry has witnessed continuous growth in the past two decades. The transition from the early days of landlines to cellular services and to 3G, 4G and now 5G has seen the industry grow and businesses make inroads to make hay while the sun shines. All the way from the 90s down to now, the Arfeen Group has seen it all. From payphones, to wireless phones, and mobile communications services, the group has a rich history of providing telecom services in the industry. Their portfolio of industries includes Instaphone, Telecard Limited, and Supernet Limited. Instaphone is now a thing of the past, while Telecard is about to become a thing of the past. And in a recent announcement, the

TELECOMMUNICATIONS

management of Telecard Limited has hinted at listing the somewhat-better performing Supernet Limited on the Pakistan Stock Exchange (PSX), in what seems to be an attempt to prevent the Group from becoming a thing of the past. Telecard Limited was incorporated in Pakistan in 1992 as a public limited company, launching public pay phone service. In 1995, the company did its initial public offering. Subsequently, Supernet Limited was launched to provide internet services. While the Telecard business is dying down, Supernet business is seemingly taking off and the Group is banking on its success to stay relevant.

When Supernet was launched, it was providing the internet, and everything else. Electronic Data Interchange (EDI) for one. Under EDI, businesses would communicate electronically, rather than through paper and EDI was recently mandated for all nations to facilitate trading and automation

were wireless landline phones that could be bought, brought to home and used to make phone calls using a prepaid card. In 2004, Telecard acquired its license for LDI (Long Distance and International) communications service. For Telecard, it has been a set pattern that whenever it introhe popular version of history that duced a new service, the previous one would industry insiders like to tell is that be dying out because of the evolution in the Instaphone, Telecard, and Supertelecommunications technologies that was net are all pioneers in the services changing the way communication would they introduced in the market. The company occur. Telecard’s venture into the payphones derived its vision from its founder, the late business was to replace the traditional pubSultan ul Arifeen, a visionary ahead of his lic call offices (PCOs). When WLL was intime who commenced the Telecard legacy. troduced, it was going to replace community Sultan ul Arifeen would get his inspiration payphones. By 2004, Telecard’s payphone to venture into IT-related businesses on his business was largely displaced by WLL busitravel trips abroad, attending IT conferness that formed the bulk of the company’s ences, meeting people and showing interest revenue between 2004-2008. Though some in IT related hardwares. revenues were being generated by the WLL It was reportedly his ambition that business, it was largely being decimated by the company started off establishing itself increasing cell phone penetration and post as a telephone operator, installing shared 2016, there’s hardly been any revenue that community telephones in the streets and in came from WLL line of business. the buildings. From payphones, a series of “Telecard’s demise has come in phases. Share Price innovative services were2010 launched by 2011the 2012 2013 2014 2016 2017 Firstly, payphones went 2015 bust, secondly Share Pricein line with the 2.21trends of the 0.8 time. 2.58 5.21 3.31 2.88 4.74 1.96 company, when cellular phones became cheap, WLL From payphones, Telecard moved to introstopped making sense. It did not have a duce WLL phones in 2002. WLL phones great coverage either,” said a source, choos-

A brief history of unrealised ambitions

ing to remain anonymous. “The next phase was value added telecom services like call center solutions and call recording solutions for business phone lines. They had better luck with call center solutions and then they made some customer care management solutions. For instance, if you needed helpline for your business, they would do that for you. But these are all list making items rather than actually lines of business,” he adds. According to the source, LDI has been the company’s only lifeline lately and that too is dying. The company has only till 2024 when the LDI license expires. On the Supernet side as well, the company has been a pioneer. And according to a source, as the name suggested, the company aimed to provide super internet everywhere. When Supernet was launched, it was providing the internet, and everything else. Electronic Data Interchange (EDI) for one. Under EDI, businesses would communicate electronically, rather than through paper and EDI was recently mandated for all nations to 2018 2019 trading 2020 and Jan-21automation. Feb-21 Mar-21 Apr-21 facilitate 1.4 1.64 2.9 7.91 6.79 14.78 “From 2.34 EDI, they moved to X.25 that provides packet communication on WAN (Wide Area Network). Then they had VSAT

May-21 13.75

Telecard Limited historical share prices in Rupees 16

14.78 13.75

14 12 10 7.91

8 5.21

6 4 2

4.74 3.31

2.58

2.21

2.9

2.88 1.96

0.8

2010

2011

2012

2013

6.79

2014

2015

2016

2017

1.4

1.64

2018

2019

2.34

2020

Jan-21

Feb-21

Mar-21

2010-2020: closing price as on year end Jan-Apr 2021: closing price as on month end May 2021: closing price as on 3rd May

Apr-21

May-21

Source: scstrade.com

24 Volume Traded

1,520

576

658

752

211

6,365

1,836

36,652

6,852

22,477

25,210

which was point to point communication via satellite, and radio communications. They connected bank headquarters with all the branches in other cities, they connected corporations with each other when there was no internet,” said a source. “They were the first ones to start dial-up internet in hourly fashion, selling internet for Rs40 an hour. That was even before Cybernet had entered the market. Supernet also started doing prepaid internet which meant that the user could be kicked out when the hour was up,” the source said. However, while Supernet started off with providing internet and other forms of connectivity solutions, it hasn’t jumped the gun to introduce fiber-optic internet. Right now, the company takes fiber from some other company and does the project management in their name.

Shaky financials

t has been a tumultuous journey for Telecard. The death of the company is certainly visible in the financials available publicly. The revenues of Telecard have been falling consistently since 2010 when the company made Rs2.4 billion in revenue. Whereas in 2020, Telecard’s revenue has fallen to Rs1.1 billion. But overall losses are profound. The company has not disappointed when it comes to making losses since 2017. It made a net loss of Rs91 million in 2017, 129 million in 2018, 60 million in 2019 and 109 million in 2020. On the other hand, the company that it wants to consider listing separately has been gradually picking up on revenues since at least 2012, surpassed the revenue of Telecard Limited in 2015 and for the year 2020, the revenue generated by Telecard Limited is more than twice that of Telecard Limited. On the profit side, things aren’t encouraging either but certainly better than Telecard Ltd. The bright side is that it hasn’t turned losses since at least 2010. The not-so-bright side is that Supernet is barely escaping losses. It has been a roller-coaster ride so far with only Rs0.313 million reported in net income by the company in 2017, peaking to Rs80 million the next year, only to fall to Rs21 million in net profit for the year 2020. The company attributes the drop in net

In 2004, Telecard acquired its license for LDI (Long Distance and International) communications service. For Telecard, it has been a set pattern that whenever it introduced a new service, the previous one would be dying out because of the evolution in the telecommunications technologies that was changing the way communication would occur income to increased taxation. It is because Telecard does not generate any income, and that because Supernet generates some income, market analysts believe that if Supernet is listed separately, at least Supernet would be able to do better in the stock market. That is also what perhaps the company thinks. “Right now, whenever one thinks of Telecard, they think of the old payphone service. The reality is that the company has actually evolved towards other lines of business. So the Telecard perception actually overshadows the Supernet business and that is what is hurting them,” an analyst said. The company has also reportedly decided to change the name of the company from Telecard Limited to something that more appropriately represents the evolving nature of business. Since the beginning of 2018, Telecard Limited’s share price has been hovering around the Rs1-2 range. However, in February this year, the Telecard Share price surged beyond Rs3 for the first time since 2018, with volumes traded reaching millions of shares. Since the beginning of February till May 5, the share price has surged to go beyond Rs15 and volumes traded in millions. Twice, the PSX has sought an explanation from the company on the unexplained. Soon after the February surge, Telecard wrote to the PSX conveying its ignorance of what was driving the share price. On April 26, the Pakistan Stock Exchange again sent a letter to Telecard management to explain what was causing an unusual increase in share price and volumes. This time, however, Telecard had something substantial to say: Telecard man-

But overall losses are profound. The company has not disappointed when it comes to making losses since 2017. It made a net loss of Rs91 million in 2017, 129 million in 2018, 60 million in 2019 and 109 million in 2020

agement participated in a Virtual Technology Investors Conference in the beginning of April in which the company showcased its capabilities. It was here, according to an analyst, that the company showcased Supernet as doing better than Telecard, and gave the initial hint that Supernet might be listed separately. Subsequently, the recently released financial results for the nine months of 2021, with net consolidated profit of the company reaching Rs334 million. That is a substantial increase from last year when the company made a net loss of Rs40.6 million for nine months. The company attributes the increase in net profits to decreases in direct costs, liabilities that are not payable anymore and reduced taxes for the telecom sector. Direct costs reduced to Rs1.9 billion for the nine months of 2021, from Rs2.1 billion in 2020. Whereas there was a hefty increase in other income, which was reported at Rs140 million compared to only Rs12 million in the previous year. Supernet has recently made inroads into the cybersecurity business through another brand called Supernet Secure. Besides Supernet Secure, Supernet Limited has launched two other brands, Supernet Infra that provides power and surveillance solutions, and Supernet E-Solutions that provides SaaS-based business automation solutions, mobile applications, e-learning and contact center management solutions. Another subsidiary, Phoenix Global FZE manages cross-border international connectivity services. However, according to a source, these subsidiaries are quite recent and to consider them a stable business would be premature. Super Infra, for instance, was launched in 2021, whereas the cybersecurity business was launched only in 2018. Though the recent financial results give an encouraging picture of the company, “It is too early to say if Supernet overall is a sustainable money making business right now”, according to an expert with knowledge of Supernet’s business. n

TELECOMMUNICATIONS

Dewan Cement

is struggling. But why?

In what was supposed to be a record breaking year for the cement industry, Dewan continued to tank “If ye give thanks, I will give you more (Holy Quran)”

he above quotation from scripture is what a recent report for the nine month period of 2021 for Dewan Cement, recently released to the PSX on April 30 started. We mention it because of a crucial fact: Dewan Cement is part of an industry that perhaps unlike any other, was ‘given more’ in the year of the pandemic. When things go wrong and times are tough, such as they were and continue to be because of the global pandemic, all industries in Pakistan like to complain and ask the government for handouts and tax breaks. One of the industries that the government actually listened to was the construction sector, particularly because they wanted to keep it running so daily wage earning labourers would not be put out of work. As a result, to recap, the cement sector picked up significantly in 2020. First, the interest rate was cut significantly by 625 basis points to 7%, helping with loan repricing, and new loans for large projects. Second, the federal government announced a construction package in April 2020, upon which investors will also be granted a waiver of up to 90% on tax, if they are investing in construction projects under the Naya Pakistan Housing Scheme. The government also followed up with more incentives for the industry in the new budget for fiscal year 2021. Around Rs69 billion was allocated for dams, and Rs30 billion was allocated for the Naya Pakistan Housing Scheme. Third, the central bank asked commercial banks to allocate 5% of their total lending to the construction sector (banks’ current exposure to the sector is only at 1% of overall advances). This was provided at a low rate of 5% and 7% for five and 10-marla houses (one marla is around 225 square feet). This meant - that as Dewan Cement’s own report mentioned - the cement industry has had a yearly growth of 17%. Local dispatch-

es volume stood at 43 million tons compared to 37 million tons in the same period last year. The overall sales volume increased by 6 million tons, with local sales growing 18% to 36 million tons, while export sales increased to 10.87%. And guess what did not grow? Dewan Cement. Somehow, in the greatest year to ever bless the cement industry, Dewan Cement’s two plants remained essentially shut (the company has two production facilities at Deh Dhando, Karachi, and Kamilpur Hattar Industrial Estate, in Khyber Pakhtunkhwa). The company performed poorly in both 2020, and 2021. In 2020, the company made a loss of Rs1,324 million - an astonishing figure, even when compared to the loss the company the year before (of Rs275 million). It also made the lowest revenue figure since (at Rs5,833 million), since 2011 (where it stood at Rs5,089 million). And the year 2021 is also not looking great either. For the nine month period ending March 31, 2021, the company’s revenue stood at Rs3,744 million, compared to the Rs5,401 million just the year prior. The company’s net loss fared slightly better, standing at Rs226 million, compared to the loss of Rs738 million the year prior. If one analyzes the data, the company’s net revenue is set to stand at Rs4,176 million, comparable to 2008-2010 era figures, erasing any of the gains of the last decade. And the annualized net loss stands at Rs812 million - the second highest loss since 2009. And here is the real kicker: in a year

where cement companies were producing more cement than ever before, when (as Profit has previously covered) competitors are opening up new cement plants, Dewan Cement produced less cement than ever before. At its peak, it produced 2.2 million tons of cement in 2018: this figure dropped to 990,000 tons in 2020, and is set to settle at 582,000 tons in 2021.

What gives?

o understand what is wrong with Dewan Cement, and why its cement plants are lying around quite uselessly, it helps to have a little understanding of what is wrong with the Yousuf Dewan Group itself. A quick history recap: the Yousuf Dewan Group started in 1912, as a small company dealing in used garments. The group grew steadily over the century. Then, in the late 1990s, Dewan Muhammad Yousuf Farooqui started to play a more active role. In the 2000s, he leveraged his friendship with then President Musharraf to expand the group, which would hurt him in 2008, when the arrival of the Pakistan’s People’s Party meant the group would no longer get special attention. It did not help that that was laos the year when a global financial meltdown hit the cash flows of the conglomerate badly. Most of its businesses depended heavily on imported raw materials, like auto kits, coal and polyester. Banks revoked credit lines, and the group’s companies were left without working capital to run even everyday operations.

The Dewan empire crumbled like a house of cards: from posting a net profit of $5.8 million in 2006, the group went on to register the country’s largest-ever default in 2008. Sources put the default at close to Rs55 billion. The State Bank of Pakistan (SBP) forced banks to set up the steering committee to help minimise the loss arising out of the country’s largest default. And because the banks decided to go pari-passu (or an arrangement under which all creditors are regarded equally and repaid at the same time and at the same fractional amount as all other creditors), the Yousuf Dewan Group was given a second lifeline. Then in 2015, the steering committee came up with a debt restructuring plan in August 2015, which was then mysteriously shelved. Instead, the committee wanted the group to sell their cement business. Previously, Farooqui had shown some willingness to sell his cement plant around 2012, but found the price at the time (Rs7 billion according to sources) too low. And something else happened in the meantime: the company began to do well (as the numbers show) and by 2018, could fetch up to Rs20 billion. Please, for the love of God, sell, said the banks. And from the banks’ perspective, it makes sense. Sell the most profitable asset you have, and you can prop up the rest of the defaulting company. Besides, in the latter half of the 2010s, even before the recent cement wave, existing groups were clamouring to buy up cement plants. According to Shankar Talreja, deputy head of research at Topline Securities, the cost of setting up a new cement plant is so astronomically high, and the amount of capital required to get it running, that groups find it much easier to buy existing plants and revamp them, thereby providing an easy in into the market. By his own estimates, there are anywhere around 15 groups at any given time trying to enter this lucrative business, and be potential buyers. Think of how the Bestway Group, by way of example, bought a non-operational plant in 2005, and another in 2015. But where are the buyers?

Avoiding the Yousuf Dewan group, at all costs.

current liabilities exceed its current assets by Rs3,553 million. As the company itself notes, its short-term borrowing facilities have expired, and it has been unable to ensure scheduled payments of long term borrowings due to the liquidity problems. Most of the lenders have gone into litigation. And that is why, it seems, no one wants to touch Dewan Cement with a 10-feet pole. No buyer wants to be dragged into the Yousuf Dewan saga - and it has been a decade long saga, which adds to that image problem. Part of that image problem of the man himself. Some, according to sources, won’t do business with him out of political leanings. After all, the man was closely linked to Musharraf, a former president who is practically irrelevant to politics today, and is not on the best terms with the PPP - a political party that can command outsize say in certain industries, particularly in the province of Sindh. Yet others say that the problem is less dramatic, and in actuality it is Dewan’s own hesitation that has cost him. Time and time again, since 2008, in 2012, and again in 2018, offers have been made to the Dewan group to take this asset off his hands. But Dewan himself created a reputation of not accepting past offers. Now, when the time is dire, it turns out buyers simply do not want to waste time on a company that will barely sell. In fact, the group faces a serious credibility crisis as it turns down offers for its cement plants for the umpteenth time, raising doubts about its intent to sell and settle the default. Yet another theory abounds: that in fact, Dewan Cement is underreporting its revenue and profitability numbers, and in fact, is doing well, just like the other cement players. Others

say this theory is entirely a myth, as the fact of the matter is the plants are shut, and figures can not be manipulated to that extent. But the prevalence of such a strong rumor explains why several potential buyers are thrown off by the ‘shady’ image of Yousuf Dewan. Concern about the numbers could easily be averted with a robust audit. But the group’s books are not audited by one of the big four firms - Deloitte, Ernst and Young, KPMG, and PricewaterhouseCoopers (PwC). Instead, the group’s auditors are Faruq Ali & Co Chartered Accountants. Now, the auditing company is an old one, having been set up in 1967 by a chartered accountant. And, many companies in Pakistan use local audit companies - perfectly fine to do so. However, a group the size of the Dewan Group, and facing such a serious credibility problem - to not be able to get one of the more recognized audit firms to audit its books, has led to, again, questions about the Dewan Group’s real intent. And having a recognized audit firm matters. The Big Four are trusted more than other firms, and by more investors, which means that they get to command a higher fee than other firms (in some cases, commanding prices that are four times higher than the number five firm). The Big Four can charge higher prices because there are people willing to pay more for the ability to say that they are subjecting themselves to the rigours of an audit conducted by one of the Big Four firms, which is perceived to be better. All of this is to say that perception matters, and that Yousuf Dewan has bungled his image in front of buyers. It seems the group will have to do more than just ‘give thanks’ - it will quite literally have to reinvent itself. n

ccording to Talreja, the excessive legal constraints have ruined Yousuf Dewan’s group image. And that matters. We at Profit have previously covered the impact of multiple defaulters walking around scot-free in Pakistan, running circles around banks. But, apparently, there are standards even within the defaulters. As the financial information for the period ended 31 March 2021 shows, the company’s

CEMENT

The advertising industry scrambles in wake of

Amazon announcement

Within hours of the rumors, feasibility studies with regional support concluded that agencies need to start securing reseller relationships for the Amazon advertising unit and either build or resell the B2B technology that the market will eventually need

By Babar Khan Javed

n the wake of market rumors on Wednesday last week that Amazon would include Pakistan in its Reseller List, advertising agencies led by digital natives sprung into action to understand their sui generis for the impending business opportunity. While advertisers and agencies have gotten a taste of large-scale eCommerce through relationships with Alibaba-owned Daraz, the perceived inconsistency of last-mile customer experiences means that decision-makers are ready to try their hand with the American alternative. Speaking with Profit, the chief investment officer (CIO) of a large media agency shared that talks had begun through regional headquarters for the company to secure a formal relationship with Amazon in order to resell its

advertising services to advertisers in Pakistan. As predicted by this scribe in 2017, the advertising business at Amazon has grown into a sizable contributor to the overall revenue of the technology company, with the latest quarterly filing showing that the business unit grew 77% year over year to make $6.9 billion. For context, this is seven times the revenue generated by Twitter from its advertising business during the same quarter. During the earnings call, Amazon CFO Brian Olsavsky said the growth was driven by a large amount of website traffic along with improvements to advertisement relevancy and better products. “The advertising team has done a great job of turning clicks into productive sales,” said Olsavsky. “We’re using new deep learning models to show more relevant sponsored products, we continue to improve the relevancy of the ads being shown on the product detail

pages and we’ve seen rapid adoption of the video creative format for sponsored brands, among other things.” In the Pakistan market, most eCommerce sites offer advertisers and agencies the opportunity to place sponsored ads that direct website visitors to branded stores within the site or outside it, with digital media pricing favoring the former. As reported by Profit, since 2020 Daraz has redirecting large and small advertisers towards The Catalyst Act to lead performance marketing around special holidays or seasonal sales events, with 11/11 being the most recent example. Speaking to Profit, a spokesperson from Daraz said that The Catalyst Act is a business unit that functions independently and serves advertisers as a digital marketing agency. “We offer all marketing services,” said Saman Javed, founder of The Catalyst Act. “Be it performance marketing, search engine

The advertising team has done a great job of turning clicks into productive sales. We’re using new deep learning models to show more relevant sponsored products, we continue to improve the relevancy of the ads being shown on the product detail pages and we’ve seen rapid adoption of the video creative format for sponsored brands, among other things Brian Olsavsky, Amazon CFO

optimization, influencer marketing, creative production, storefront management, customer relationship management – everything that you need to run your online marketing channels.” Advertisers that spoke to Profit said The Catalyst Act was pitched to them as a cross between an ad server, a digital agency, a retargeting solution, and a data aggregation platform. The arrangement is akin to the relationship between GroupM and Lazada, whereby the former has access to marketing assets of the latter. When advertisers and agencies route their digital campaigns on Daraz through The Catalyst Act, they gain preferential pricing. As for Amazon, the CIO that spoke to Profit said that the newly minted in-house creative team was working hard to understand how branding works on Amazon, in order to offer platform-specific services to direct to consumer (D2C) advertisers that are interested in generating high-quality content - akin to the approach at Brandverse - and setting up brand identity aligned online stores. The end goal here is to be the preferred reseller for the advertising inventory of the American technology business, collecting clients who would be interested in being discovered on Amazon by site visitors. The formats offered are posts that are feed-based shopping experiences, sponsored listing, and a host of additional online inventory listed on the Amazon demand-side platform (DSP). “In preparation for the depreciation of the third-party cookie, we have been helping

our clients build custom-segmented audiences, with which we can help them leverage the audience overlap report on Amazon to find audiences with attributes or behaviors similar to the audiences they have set up,” said the CIO that spoke with Profit. “This provides a pool of Amazon users who are likely to be relevant to our clients since they share attributes with current customers.” The source shared that a pitch deck was in the works explaining this to clients, which will detail how this method will exclude the advertisers’ existing CRM list, thereby leading to an entire campaign reaching partially qualified potential new customers. Regional sales executives at Oracle and SAP confirmed to Profit that the inclusion of Pakistan in the Amazon reseller list has led to a greenlight for offering SaaS commerce solutions in the country, which are meant to offer prebuilt integrations and strong business user tooling. Following the consultative sales model, the executives shared that customers would be offered a product roadmap, delivery model, and an extensibility ecosystem. D2C business decision-makers that spoke to Profit shared that they would prefer solutions that offer sales channel support, business intelligence analytics, and commerce management based on the experiences of using Magento by Adobe and Shopify, the latter of which has become a popular choice for Bonanza Satrangi and Super Sauda by Unilever. Sources from the Pakistan Software

Houses Association shared that their members were in talks to secure market development funds from leading alternatives such as Salesforce, Episerver, and BigCommerce. “Locally created headless commerce solutions are below par in promotions and product configuration,” said an executive with an Oracle gold software house. “They lack intuitive business user tooling and workflows and while the design of the business user tooling is familiar to coders, it is, unfortunately, foreign to merchandisers who need to work with agility to respond to shifts in market tastes.” The inclusion in the reseller list has technology executives believing that branded manufacturers will be using eCommerce solutions to sell to both D2C and wholesale to retail partners (B2B2C), for which sources shared that the market needs to step up and create an above-par functionality in business intelligence, personalization, and product configuration, that is on par with other vendors for promotions and order management. “We believe that mid market manufacturing and wholesale companies will eventually have no choice but to use a headless commerce solution to keep up with the real-time flow of demand if an unprecedented amount of businesses start using Amazon,” said an executive. “The market will need to keep up with sophisticated foreign solutions of trying its hand with bSecure and Brandverse instead. Speed is everything.” n

We offer all marketing services. Be it performance marketing, search engine optimization, influencer marketing, creative production, storefront management, customer relationship management – everything that you need to run your online marketing channels Saman Javed, founder of The Catalyst Act

ADVERTISING

OPINION

Anonymous

The fault in our auditing environment

ICAP can no longer in good faith act both as institutions and regulator

ditor’s note: The author of this article is an auditing professional with years of experience and is still working in the industry. They have chosen to remain anonymous out of fear of professional repercussions. Lately there has been a lot of talk among people, both in Pakistan and abroad, about the role of auditing firms. In Pakistan, more often than not, cases of money laundering, tax evasion, and falsified accounts have come to light (most recently the case on the listed sugar sector) that have either implicated auditing firms or auditing firms doubt the honesty of Pakistani companies. With all this going on, I would like to offer a personal view based on years of being part of the auditing industry, to shed light on how most audit firms operate in Pakistan and what needs to change. In Pakistan, ICAP is also responsible for adopting and issuing auditing standards. Under the Companies Act of 2017, accounting standards fall under the domain of the Securities and Exchange Commission of Pakistan (SECP), but the SECP decided to delegate

Anonymous The author is an auditing professional

this responsibility to the Institute of Chartered Accountants of Pakistan (ICAP). Similarly, insurance companies and banks are required to follow financial reporting standards issued by ICAP. In 2016, an independent Audit Oversight Board (AOB) with the responsibility to regulate the auditing profession in Pakistan. Only members of ICAP are permitted to audit the financial statements of all companies, except for private limited companies with paid up capital below 10 million rupees. What I realised during my time working at these firms is that most of these audit firms are only interested in making money. There is no focus on client satisfaction or employee development or research & development. The people running these companies know that their clients will always need an audit and that the demand for their services will never die. It is a widely known but unreported fact that audit points are compromised in management and board letters for renewal of contract and substantial increase in fees. This was also disclosed by a former managing partner of EY Ford Rhodes & Sidat Hyder, and Basheer Juma in a LinkedIn post. It is also pertinent to note that ICAP has also set out minimum audit fees. With employees and trainees being paid peanuts (below minimum wage rate) in these firms, it shouldn’t be difficult to analyse how high the profit margins for these firms can be. After all, most of the field work is carried out by fresh trainees, who have little to no experience of auditing or business environments. Ironically, these audit firms do not need to carry out an audit of their own financials so no one finds out how much they earn. Audit firms usually charge out of pocket expenses, which are misused by audit firm employees. There are numerous cases of very senior personnel in auditing firms charging personal expenses in out of pocket to companies. What is more surprising is that most companies do not bother to validate why out of pocket expenses are being charged to them and for what.

There is also a culture of discrimination within our audit firms that inhibits innovation. If you are not a CA (ICAP) or following that particular route, you are considered “inferior”. Members of other accountancy bodies (ACCA, CA (ICAEW), CPA, ICMA) are constantly discriminated against. These members are not given promotions, job interviews, or competitive salaries. A couple of years ago, they tried to banish ACCA trainee students from audit firms fearing that they would perform well and get ahead of them in the corporate world. Trying to keep and sustain a monopoly has, in my view, rendered the institute weak. Recently, I was listening to an interview of a senior VP of ICAP, who boasted about the success of ICAP members with many auditing firms working globally. There is no denying the fact that ICAP members are competent. But there is another side to this story. Most ICAP members have attained memberships of other accountancy bodies, which could have been more instrumental in their professional success. Even Fellow ICAP members are known to chase foreign body memberships. How many foreigners would like to have ICAP membership? It is also very hard to believe that to this date only somewhere around twelve thousand five hundred (12,500) candidates have been able to pass the chartered accountancy examination. Agreed, the exams may be hard, but this number is an anomaly compared to other professional accountancy bodies that are more respected and known for their integrity. Moreover, despite the fact that SECP regulations inherently promote accountants for the positions of CFOs/Company Secretary/Internal Audit, we can see more and more graduates undertaking this role in MNCs, where growth opportunities are fairer and done on merit. Most ICAP members happen to work in local companies. This is the reality, no matter what the institute tries to market. The world has moved on from manual audits to digital audits. Audit firms, especially the big 4 firms here and in the UK/US, have started to take tech professionals on-board to help execute audit engagements. System audits are becoming the norm through promoting the adoption of ERP solutions, but in Pakistan the surprising thing is that even with the implementation of ERPs, digital audits are not the norm. While the world earns from tech, we simply avoid it because the top brass of the industry does not want to shake the boat and break their lazy lull. Pakistan is now the largest country by population – and the only one among the biggest ten countries in the world by population – to not have all Big Four accounting firms present inside the country. There are economies in other parts of the world that are one-hundredth the size of Pakistan that

It is also very hard to believe that to this date only somewhere around twelve thousand five hundred (12,500) candidates have been able to pass the chartered accountancy examination. Agreed, the exams may be hard, but this number is an anomaly compared to other professional accountancy bodies that are more respected and known for their integrity still have all the Big Four firms supporting their corporate sector. In Pakistan, almost all partners of Big 4 firms are ICAP members for all service lines, a sharp contrast to global profile, as highlighted recently on twitter by a banker. Maybe SECP needs to break its silence and review its regulations to allow foreigners to come and share their experience. One good thing ICAP has tried is getting university graduates to pursue the CA qualification. I have been told that this has been met with moderate success. However, I have heard more stories of people dropping out of CA programs than of people getting in. The problem in this approach is that ICAP wants to introduce tech to CA members. The approach should be different. Tech graduates should be introduced to CA. We need to follow the CPA model carried out here which has been a tremendous success. Very few graduates would be willing to spend another three years in training for low remuneration and give additional eight exams. They therefore prefer to go after other certifications.

The public has lost trust in auditors. If Pakistan needs to regain investment trust, it needs to tackle these challenges and make bold decisions. Change will be difficult, and the silence of governmental agencies along with ICAP members being in influential positions means that any change will be rejected. I find it difficult to comprehend how ICAP plays a dual role of both an institute and regulatory body clearly a conflict of interest. The members would always promote their own self interest - normal human psyche (reference regulatory capture theory). If the government really wants to change, it has to start from the very basic and decide one thing – what is the role ICAP has to play in society? Does it act as a regulator or an institute, because clearly functioning as both is a major conflict of interest. Should there be an open competition between different accounting bodies in the field of audit to promote innovation? Maybe we might see some expats come back and serve Pakistan. The government must act. I hope and pray that it does.

COMMENT

The story of a growing local franchise Despite the pandemic, Mushtaq Panjwani has managed to sell a number of franchises

By Ariba Shahid

akistan lacks the cafe culture that is so prevalent in other countries. The coffee bars and cafes that do exist generally focus more on serving fresh, hot food, desserts, and coffee, and generally prefer that you have your meal, talk to your friends, and head on out as soon as you’re done. It is a loud, rambunctious, usually friends-and- family oriented setting. Coffee Wagera, an up and coming small to medium sized enterprise in Karachi, is trying to change that. A completely locally grown brand, Coffee Wagera aims to be the kind of place where you can walk in, plug in your laptop, order a drink, put your head down, and get some work done for the next few hours. Essentially, a very relaxed, laid back, environment designed for people looking for that work location that is not home but not an office. What makes Coffee Wagera even more interesting is the fact that they are already offering franchises for their coffee shops, because they believe their brand is the Starbucks style coffee franchise that Karachi has been lacking for years. Normally, local chains shy away from opening

franchises because of concerns about quality control, and franchises are limited to large international names like McDonalds, KFC, Subway, Pizza Hut, Burger King, and Miniso. Even with coffee, franchises like Second Cup and Dunkin Donuts have now existed here for a while. Very few would say that a franchise of Coffee Wagera comes to mind as an investment opportunity, but it might be worth looking into.

The inspiration

ushtaq Panjwani, who prefers to go by his nickname ‘Mush,’ was working in sales as a trainer primarily based in Hong Kong. There, he was accustomed to working from coffee shops while traveling. So on a visit back home to Karachi, when some work came up, Mush packed his bag and set out to find a coffee shop to set up camp in and get cracking. “I went to a famous coffee shop in Karachi hoping I could get some work done the same way I have in different countries. However, when I got there I realized there were no power sockets near tables, the Wi-Fi was terrible, the coffee was outrageously expensive and more importantly, the condescending staff did not

appreciate the idea of someone staying long and working,” he says. But in that moment, Mush did not feel wronged, instead he felt like he had stumbled on to an opportunity. “A coffee shop and a restaurant are two separate types of eateries. Coffee shops like Starbucks and Cost Coffee around the world are not known for their snacks or meals but instead for their coffee. They don’t have kitchens. At most they’ll have small items to nibble on,” he says. “That was a eureka moment because I realized the problem was that I was sitting in a restaurant that also serves coffee. The coffee shop model like one experiences at Starbucks or Costa just doesn’t seem to exist in Karachi.” The first Coffee Wagera outlet opened up in Badr Commercial after Mush went through Barista training and did his research. There were plenty of critics of the idea. Mush says 39 out 40 people he ran the idea by said it was doomed. The logic they gave Mush was that there was no money to be made with just coffee and without food, and that people would begin to loiter. But Mush powered ahead, and gave himself the title “Chief Happiness Officer ‘’ of Coffee Wagera. A little cringey, it still shows the kind of positive attitude he had that has made Coffee Wagera a success.

“I knew I had to think big. I knew that the longer one sits, the more likely they are to order more drinks or a light snack. The model worked across the globe, it could work here too.” Despite the fact that Mush was able to open up an outlet, he decided that he would only keep the business running if it was able to break even within three months, which it luckily did. The next goal was to make sure the franchise model would be set up within a year. That goal was also met.

So how much does it cost to franchise?

he answer to that question depends entirely on what form of franchise you want to have. At present there are three types. Like all franchises, Coffee Wagera has a franchising fee and a one-time set up cost. If anyone wishes to get franchising rights for the Coffee Shop, they need Rs2 million for the franchising cost and Rs3 million for the set up cost. In addition to that, 10% of all sales in the form of royalty. Another way is much cheaper than running a coffee shop is to franchise a cart called Coffee Wagera on Wheels. The franchising cost and setup cost is Rs1 million each, meaning Rs2 million in total in addition to 10% royalty on sales. The Coffee Wager website also mentions kiosks as a franchising opportunity with the same cost of Rs2 million. The eligibility criteria is also fairly simple. You need to be fully committed to the restaurant franchise with no other job or business, have enough money to go through with the investment, and have a passion for coffee, customer service, and social entrepreneurship. The cost of setting up a Coffee Wagera franchise is relatively cheaper than opening up a restaurant precisely because you do not need to set up a kitchen. “All our snacks are provided by female entrepreneurs after a strict check,” explained Mush. “This helps us empower women. We go through a rigorous process to select vendors and they supply to all our branches. This also helps achieve uniformity across all branches.” The coffee shop also hopes to bring down waste. In order to do this they do not sell water bottles. Instead, all outlets have a dispenser and

“A coffee shop and a restaurant are two separate types of eateries. Coffee shops like Starbucks and Costa Coffee around the world are not known for their snacks or meals but instead for their coffee. They don’t have kitchens. Mushtaq ‘Mush’ Panjwani, founder of Coffee Wagera

clean glasses for people that choose to stay in and work or just grab a cup of coffee. Moreover, in order to eliminate further waste, the brand does not serve paper sachets of sugar with coffee, instead they have liquid sugar syrup at the counter. Mush says people that choose to franchise with us should also be motivated towards reducing waste and being inclusive employers. The brand goes as far as possible to discourage takeaway and rewards customers with a discount if they bring their own cup, and penalizes them by charging extra for disposable takeaway cups. Mush believes steps like these are good for the environment and he feels his business should play his part.

How successful has franchising been?

“T

he first franchise is always important. It helps future growth of the business,” says Mush. The first person to get a Coffee

Wagera outlet was Mehwish Asad, who opened an outlet at Maskan. For her, it was a journey of first being an impressed customer, and eventually the owner of her very own Coffee Wagera franchise. “I found it very different from what everyone else was doing,” said Mehwish. “My decision was a good return on my investment, compared to other options I could have gone for, I found this quite cheap.” So far, Mush runs and owns one branch, i.e. the one at Badr commercial that he opened initially. The remaining branches in Gulshan Iqbal, North Nazimabad, Bahadurabad, and Clifton are all franchised. So far there is one Coffee Wagera on Wheels at I.I Chundrigar that also drops by around Bahadurabad when offices at I.I Chundrigar close. In addition, two new branches are set to open. Coffee Wagera is now expanding into Hyderabad this month, and Bahria town by July. The fact that Mush has been able to sell off franchises despite the pandemic and the

The different ways you can have your own coffee wagera Dine-in Outlet Min 550 SqFeet 20 people capacity Franchising Fee: Outlet setup cost:

Total:

Rs 2million Rs 3million

Rs 5million 10% royalty on sales

Coffee Truck Franchising Fee: Setup cost:

Total:

Kiosk Rs 1million Rs 1million

Rs 2million

10% royalty on sales

Min 250 SqFeet, No seating Investment:

Total:

Rs 3million

Rs 3million 10% royalty on sales

RESTAURANTS

on and off nature of dine in is interesting and suggests investors find the business worth their while. “All the branches were able to break even soon after their launch. The only branch that struggled was Clifton considering it opened a week before the country went into lockdown. Despite that they were able to stick it through,” explains Mush. Perhaps one of the reasons for Coffee Wagera becoming so popular so quickly is that there is a growing part of the workforce that needs spaces like these. As per a report by the Pakistan Software Export Board (PSEB) titled “Freelancer: A Workforce in Acceleration”, Pakistani freelancers have earned more than $150 million in revenue during FY 2019-20 while working for 120 countries. The report also states that Pakistan ranks fourth in the world when it comes to Freelancing. Moreover, the report notes that more than 60% of freelancers in Pakistan are in their 20s and 30s. The success of such a coffee shop largely depends on freelancers. For anyone that has experienced work from home, the struggles of a stable Wi-Fi connection remains a challenge. Moreover, the suffocation of staying at home is something that tends to dry you of your creative juices. A workspace that serves cheap coffee and does not pester you to order repeatedly sounds great for freelancers.

But could it be profitable?

f we ignore what Mush and Mehwish have to say about the business being profitable and look at the business model, it seems fair. However, there are a few concerns. For starters, when one decides to go for a franchise they expect some sort of

“I found it very different from what everyone else was doing. My decision was a good return on my investment, compared to other options I could have gone for, I found this quite cheap” Mehwish Asad, Coffee Wagera franchise owner

freedom or independence. While marketing, branding, products, menu, and overall policies are expected to be the same, the influence of the owner at the various franchises remains. Mush visits outlets every week to make sure things are on track. That, however, could also be attributed

to the fact that as the Coffee Wagera franchise becomes a brand, he is trying to make himself into a brand as well. Franchises also have to take part and organize open mic nights, training sessions for staff, and brunches to help the community. Not everyone that is looking into franchising would be that keen to do so and this may act as a deterrent. The decision to set up a workbench was made to allow more people to work rather than hoard one entire table. This was done keeping in mind that Pakistanis are unlikely to feel comfortable sharing tables. However, the policy of allowing customers to sit for as long as they want as long as long as they make an order of Rs280 per person inclusive of GST, may also deter investors. Like we said earlier, back in the day you would only think of international names when it came to the word franchise. However, smaller businesses have popped up and are joining the franchising bandwagon. It makes sense. If a business is successful, it has a loyal following and audience, why not scale it through franchising? From an investor’s point of view, franchising itself is a safer way to set up a business. You’re betting against failing just because of the goodwill and the fact that it is established. n

RESTAURANTS