CONTENTS
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18 Tragic hero or self-pitying schmuck — What will it be Mr Khan? 19 Who is going to bell the cat: Increasing fuel prices Ammar H Khan
20 20 Security and diplomacy - where do we stand? Uzair Younas 21 Wheat crisis looming 23 No, Pakistan does not have the lowest unemployment rate in South Asia
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28 28 Backed by Kleiner Pekins, former SAPM Tania Aidrus kickstarts digital bank venture 30 Let’s Shutdown the MBA program 32 The curse of ‘on’ money
Profit
35 Pakistan has a nascent esports industry that can grow much bigger
Publishing Editor: Babar Nizami l Editor: Khurram Husain lJoint Editor: Yousaf Nizami l Assistant Editor: Abdullah Niazi Reporters: Ariba Shahid l Babar Khan Javed l Taimoor Hassan l Meiryum Ali l Shahab Omer Chief of Staff & Product Manager: Muhammad Faran Bukhari Regional Heads of Marketing: Muddasir Alam (Khi) l Zulfiqar Butt (Lhr) l Malik Israr (Isl) Layout: Ahmad Salahuddin l Photographers: Zubair Mehfooz & Imran Gillani l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk
Editorial Where do we go now? The new government faces serious economic challenges. The list is quite long, and sadly quite familiar. The immediate challenge will be unwinding the power and fuel subsidies announced by Imran Khan a few weeks ago. This alone can send the price of petrol soaring well past Rs 200 per litre, with all the attendant consequences on inflation. Rising inflation will put pressure on the central bank to raise interest rates, which in turn will hit state finances with higher debt service costs as well as putting the brakes on economic growth. The story is the same with power tariffs, where further hikes will become necessary, hitting household budgets, raising the costs of doing business for industry and also putting the brakes on economic growth. But beyond the immediate decisions, the biggest challenge for the new government will be to seek a resumption of the stalled IMF program and arrest the protracted decline in the foreign exchange reserves. Despite an injection of more than $6 billion since August of last year, the reserves have fallen continuously month after month. They were sufficient to finance well more than three months of imports last summer, but now they risk falling below even two months of import cover by June if the decline is not arrested rapidly. Moreover, almost two thirds of the $6 billion injected into the reserves since August is borrowed money, much of it short term, such as the $2 billion deposit from Saudi Arabia arranged in December of 2021. The room to borrow is severely curtailed given how sharply public debt, especially external debt, has risen over the past three years, and the stalled IMF program. There will be only one way to arrest this trend: kill the growth rate and devalue the currency. Petrol is not the only thing that will be soaring past the Rs200 mark. Treasury heads of major banks anticipate the dollar soaring past that mark too, although it is not clear by when this threshold could be crossed. Already the exchange rate is seeing tremendous pressure as the current account deficit hit $12 billion in the July to February period alone. The
State Bank has been anticipating a CAD of $13 billion for the full fiscal year, so clearly this target is now set to be breached significantly, regardless of what steps the new government takes in the remaining three months of the fiscal year. The new government is going to find that large subsidies and equally large interventions from the State Bank have been propping up prices of fuels as well as the exchange rate. It is almost certain that these props will have to be withdrawn as part of the resumption of the fund program, but even in the absence of that, it is seriously doubtful the government will be able to continue with these for very long. The inflationary jolt that the removal of these props will administer to the economy should not be underestimated. Beyond these challenges there loom the mounting losses of the public sector enterprises with their resultant claims on government finances. And then the circular debt that has crossed Rs2.5 trillion with no signs of abating any time soon. And now the gas sector is seeing a similar build up of receivables. Loadshedding has returned to vast swathes of the country as power generation plunges due to mismanagement of the LNG supply chain, and a period of protracted gas shortages loom. And to top it off, the country is also looking at the prospect of wheat shortages by the summer months. Profit takes a closer look at some of these pressures in this special edition this week, and the emerging picture is not a pretty one. The new government will have very little time in which to find its feet and will have to take very difficult decisions quickly. It will also be sitting atop an unwieldy coalition and will have to face a formidable opposition in Imran Khan who is determined to not go out gracefully. The country now faces a very serious situation, with the only consolation being that we have faced heavier odds in the past. That does not make the job any easier though. Nobody should harbor any illusions that with the change of government better times will return.
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Readers Say On the 16th of March, a 4.6 magnitude earthquake hit Skardu. This earthquake was neither the worst that the region has seen, nor the worst that seismic experts predict that the area will see given its position on the Himalayan Tectonic Interface belt. Apropos: Do earthquakes imperil the Diamer Basha Dam? Zee Raja,Website For weeks after the earthquake, the GilgitSkardu road remained blocked due to continuous landsliding. Because the Janglot-Skardu highway is the only connecting tributary to the region fit for commercial use, its blockage resulted in stranded travellers, a shortage in fuel that resulted in soaring prices, and a commodities crisis in Skardu. Apropos: Do earthquakes imperil the Diamer Basha Dam? Zee, Website Please let the public know when can public use beef after this outbreak of disease on livestock thanks Apropos:The vulnerability of the dairy supply chain Mrs. Hashim FBR is notorious for blackmailing taxpayers by attaching/blocking bank accounts. It is prudent to avoid the Pakistani banking system as and where possible since it is not safe due to such tactics by FBR. Apropos: FBR freezes Telenor Pakistan’s bank accounts in recovery action, company files for stay ITO Nanako, Website Well done FBR. Telenor is the most notorious company in Pakistan. I am one of the victims. I got a loan from Telenor Bank, never went into default but even then the branch auctioned the Gold without my notice at cheaper rate than the market rate incurring a loss of lacs of rupees to me. Now , my lawyer has served a fourth legal notice to them but no reply from Telenor. Apropos: FBR freezes Telenor Pakistan’s bank accounts in recovery action, company files for stay Javed Iqbal, Website
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HOW TO CONTACT
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FBR not willing to pass appeal-effect orders as the Appellate Tribunal has allowed relied to Company, and insisting for payment of tax demand which would be nullified if appeal-effect orders are passed. Apropos: FBR freezes Telenor Pakistan’s bank accounts in recovery action, company files for stay Hassaan Naeem
What an absolutely disgraceful way of work by FBR. Telecoms are one of the largest taxpayers and foreign direct investors in this country. How could someone in FBR overlook that billions of Tax money remains unpaid over a long period? Anyone held responsible there? Eventually they try to collect by force and dirty means. FBR has failed to increase the tax net to the required levels, and for their failure they are now torturing the large tax payers who are already in the tax net. Apropos: FBR freezes bank accounts of Zong alleging income tax default Qasim, Website The decrease in income can be partially attributed to a reduction of 42% in the loan base as the bank seeks to cut back its lending to reduce operational risk. Therefore, it has diverted funds towards a more secure avenue; government securities. Apropos: Losses continue for Telenor Microfinance Bank Zee, Website Remaining 66 branches also generating losses. The branch which shows profits each quarter but now in loss due to unsecured lending. Only karobar loan product is running with high pressure which is very risky product. Tsq product, salary, pension passbook products are ignored. As a result bank is going to loss day by day. Management is sleeping in recovery dept. Disbursement/ branch banking deptt pressure the staff in achieving non secure lending targets only. It’s all result due to negligence of the higher management. I am seeing all these bank policies which are harmful for running the next business. Apropos: Losses continue for Telenor Microfinance Bank M.Rizwan, website TBH, TMFB should showcase interest in merit based employment than favouritism, and should also stop the fraudulent activities, as we payed 4 consecutive months electricity bills via Easypaisa only to know that none of those bills were payed, when we contacted the so called “CARING” customer services, they told us they’d inquire and it’s about 3rd or 4th month we are yet to be contacted by any official from Easypaisa regarding our bill payment byt we don’t have the time to file cases and goto police stations so all we say is ” God will make them pay.” Which is I am happy to know happening. Apropos: Losses continue for Telenor Microfinance Bank Nafeess, website
COMMENTS
IN BRIEF COAS weighs in on Russian aggression against Ukraine
New commission to probe foreign conspiracy
Chief of Army Staff (COAS) Gen Qamar Bajwa said that Russia’s invasion of Ukraine must be “stopped immediately”, terming it a great tragedy. Speaking at the Islamabad Security Dialogue, Gen Bajwa expressed Pakistan’s serious concern over the conflict.
Information Minister Fawad Chaudhry issued directions to form an inquiry commission to investigate the “foreign conspiracy” that Prime Minister Imran Khan alleges has been hatched against his government and is powering the opposition’s no-confidence move.
No-trust motion: NA session adjourned till Sunday after opposition’s protest
Exports grew by 17.3pc in March, 2022
The crucial National Assembly session to debate the no-confidence motion against Prime Minister Imran Khan, which resumed after a three-day recess on, was adjourned minutes after it began.
US warns India against ‘unreliable’ Russia The US has warned India against warming up to Russia, ahead of a visit by Moscow’s top diplomat to press New Delhi to resist Western pressure to condemn its invasion of Ukraine.
As per data released by the Ministry of Commerce on Friday, Pakistan’s exports for March 2022 grew by 17.3 per cent to $2.773 billion as compared to $2.365 billion in March 2021.
Contents of letter containing foreign conspiracy disclosed
Rupee drops after reserves of SBP fall by $2.9bn The rupee plunged to a historic low of Rs183.70 against the US dollar in the interbank market after the State Bank of Pakistan (SBP) reported a massive outflow of $2.9 billion on Thursday.
The government confirmed that its allegation about a foreign conspiracy against the prime minister was based on a diplomatic cable received from one of the country’s missions abroad.
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Corporate Update Telecard receives clearance from the PSX for book-building of Supernet
PIA Banks on 2022 to be the year of recovery after massive losses in 2021
After getting the clearance for listing from the PSX last month, Telecard Limited (TELE) announced this Monday that it got the green light from the PSX to initiate the book-building process for the listing of its subsidiary, Supernet Limited (SNL), which is growing at a rapid pace. The process would take place on April 12 and 13 as per the regulatory filings. The company intends to raise Rs475 million from this IPO, and is to be the first IT company to be listed on the GEM board.
2021 was a dreadful year for PIA, with colossal losses of Rs50 billion, and a record low financial worth of Rs497 billion. The company holds the COVID-19 pandemic accountable for such poor performance, with pulled down the revenue streams from Saudi Arabia (low traveling for Hajj & Umrah), UAE, Gulf region, China, and Malaysia; alongside the ban from European Aviation Safety Agency (EASA), which barred PIA from operating its flights to Europe and the UK amid pilot’s licenses controversy. However, PIA is optimistic for a rebound this year, considering that it managed to turn the fourth quarter of 2021 into a profitable period, and the team is expecting the revenues to climb up with the reopening of multiple travel destinations.
Non-Banking Finance Companies get approval from the SECP to operate their P2P services In a notification issues on Monday, the Securities and Exchange Commission of Pakistan (SECP) announced that it has decided to allow the licensed Non-Banking Finance Companies (NBFCs) to operate as Peer-to-Peer (P2P) service providers where Peer-to-Peer (P2P) lending means a lending platform acting as a bridge between he lender and the borrower through an online platform.
TPLP targets Rs90 billion for its REIT fund after Rs18.3 billion success After the successful collection of Rs18.35 billion for TPL REIT Fund - I, by a subsidiary of TPL Properties Limited - TPL REIT Management Company Limited (TPL RMC), The company now eyes for a fund size of Rs90 billion. The company plans to set up a Master feeder fund structure to raise investment from International investors via an associated foreign Asset Management Company (AMC) - TPL Investment Management Limited. Apart from this, TPLP has plans to take the REIT public within the next three years following its first financial close via an IPO.
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Trade Information Portal of Pakistan (TIPP) goes live Government launches a portal that displays complete and up-to-date regulatory information related to imports, exports and transit trade for any product alongside the necessary statistical data for international trade. TIPP is a Single Window Project presented by Pakistan Single Window Company. The portal aims to provide Pakistan’s business community with quick and easy access to trade information vis-a-vis its regulations & procedures and to improve the predictability & transparency of Pakistan’s business environment.
PTV earns record revenue of Rs4 billion On Wednesday, the Minister for Information and Broadcasting, Chaudhry Fawad Hussain announced that PTV has achieved a revenue of Rs4 billion - the highest ever earned by a Pakistani state channel.
Careem gets an In-Principle approval from the State Bank for EMI license
Lucky Cement Limited Announces 34 MW Solar Power Project and 5.589 MWh Reflex Energy Storage
The State Bank of Pakistan (SBP) has granted Careem Pay with an in-principle-approval (IPA) for an Electronic Money Institution (EMI) license to financial services ranging from bill payments, peer-to-peer (P2P) transfers and wallet cash-outs. Careem has recently launched an independent digital wallet by the name Careem Pay and plans to invest $50 million in Pakistan via this subsidiary.
On Thursday, Reon Energy and Lucky Cement Limited announced a 34 MW captive solar power project with a 5.6 MWh Reflex energy storage. The project set to be installed at Lucky Cement’s Pezu plant in Khyber Pakhtunkhwa is expected to be the largest ever energy storage solution in Pakistan. It is expected to produce approximately 48 GWh (Gigawatt hours) annually. The output energy will be used on-site resulting in substantial savings for the company in cost of energy and will also cut around 29,569 Tonnes of CO2 equivalent emissions annually.
AkzoNobel Pakistan awards Descon Engineering a major Turnkey Project
Equity Market opens up for resident bank account holders
In an intense bidding process against nine other local and international Engineering, Procurement and Construction (EPC) contractors, Descon has successfully managed to win the construction contract of AkzoNobel’s 25-acre integrated paints and coatings manufacturing plant at the Allama Iqbal Industrial City in Faisalabad, Pakistan, expected to be completed within the next 18 months.
With the State Bank of Pakistan’s (SBP’s) launch of the Shared Know Your Customer (KYC) Project, local resident investors will now be able to directly invest in capital markets using their respective bank’s portal or application. This will not only speed up the investment process, but will significantly enhance the investor base and play a major role in the growth of the equity market.
Treet Corporation to produce Electric Motor Cycles On friday, In a porous filing on the PSX, Treet Corporation Limited announced that it has successfully managed to sign a Memorandum of Understanding (MoU) with an interested party to venture into the manufacturing and sale of Electric Motor Cycles.
Mari Petroleum commenced its gas supply from Sachal Gas Processing Complex Mari Petroleum Company Limited (MPCL) announced on monday that it had started off with the supply of gas from the Tipu compartment of its “Goru B” reservoir at Mari gas field. The company will initially supply 20 mmcfd of gas to Sui Northern Gas Pipelines Limited (SNGPL) and later extend the supply to export, vis-a-vis’ its newly built 25 km long cross country gas transmission pipeline.
Moody’s Investor Services terms the situation in Pakistan as credit negative Moody’s, the US based credit rating agency, in a report termed the political turbulence currently surrounding Pakistan, to ignite significant economic uncertainty over its policy continuity. It raised concerns regarding Pakistan’s credit repayment capacity and its liquidity.
National Bank of Pakistan recommends a dividend of Rs1 per share On March 30, 2022, the National Bank of Pakistan (NBP) notified that it has recommended a dividend of Rs1 per share for the Calendar Year (CY) 2021, and will be announced once the federal government approves the recommendation.
Ghandhara Nissan starts local assembly of Chery Tiggo 4 Pro & Tiggo 8 Pro
Nimir Industrial Chemicals has successfully inaugurated its Aerosols Plant
Moody’s Investor Services terms the situation in Pakistan as credit negative
As per an announcement on Thursday by Ghandhara Nissan Limited, the company has initiated the assembly of Completely Knocked Down (CBU) units for the recently launched Chery Tiggo 4 & Tiggo 8 Pro.
On Wednesday, Nimir Industrial Chemicals Limited (NICL) announced the completion of its Rs1.25 billion Aerosol expansion plant, which will take its Aerosol can production to 80 million units per year.
Moody’s, the US based credit rating agency, in a report termed the political turbulence currently surrounding Pakistan, to ignite significant economic uncertainty over its policy continuity. It raised concerns regarding Pakistan’s credit repayment capacity and its liquidity.
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COVER STORY
Tragic hero or self-pitying schmuck — What will it be Mr Khan? As Imran Khan looks to shape his legacy, will the economy give him pause or will he continue to play agitator?
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By Abdullah Niazi
erhaps one of the most fiercely debated scenes in Shakespearian scholarship is the crowning of Henry IV. After being exiled by Richard II, Henry returns with an army of nobles formerly loyal to Richard II and ousts him from power. To make the change of guard seem legitimate in the eyes of the court, Henry makes Richard renounce his throne and hand him the crown publicly and willingly. In response, Richard does hand over the crown but uses the public platform to deliver one of the bard’s most cleverly disguised speeches. In words he abdicates, but between the lines he declares Henry a usurper and an upstart — risking civil war in an already beleaguered Tudor England. When Henry senses the temperature of the room shift because of Richard’s oratory, in a moment of frustration he asks why Richard is behaving so when he has come willing to resign. “My crown I am; but still my griefs are mine: You may my glories and my state depose, But not my griefs; still am I king of those,” responds the erstwhile King. As the scene reaches dramatic crescendo, the audience is forced to ask itself. Who is Richard II? Did he bring his own fate upon him by exiling Henry in the first place out of hubris and hunger for power, or is he the victim of an unwarranted coup? In short, is Richard II a tragic hero, or a self-pitying schmuck? A similar choice faces Prime Minister Imran Khan. The way the cookie is crumbling, his days are numbered. In the aftermath of his reign, will he embody the spirit of the tragic hero, choose to take the higher road for his people, and live to fight another day? Or will he fall to the very real yet very comfortable existence of being an agitator with no care for the economic or social consequences?
Will the economy sway Khan’s response?
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mran Khan has two ways to respond to his ouster. The first is to accept the will of parliament (however dirty the process might have been), and focus on the elections ahead and how he might possibly steer the nation to steadier waters. The second is agitation
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- and that seems to be the route he is choosing. With an openly anti-American stance for the first time in 50 years in Pakistan’s history and talk of international conspiracies Khan seems to be missing one key ingredient - there is nothing more troubling than the economy right now. Perhaps it will be what sways Mr Khan to adopt a less confrontational approach. Afterall, none will (or at the very least should) know the dire straits we are in better than Imran Khan. The news of talks with the International Monetary Fund going all but bust has been overshadowed by the no-confidence vote, but it has not stopped the opposition leaders such as Miftah Ismail from already saying that their first course of action will be negotiating the IMF programme. If that were not enough, fuel prices are also set to soar. Currently, the government has kept prices tightly coiled at Rs150 per liter, providing a heavy subsidy to do so. Prime Minister Imran Khan had reduced oil prices in March. Frozen at the current level for the month of March, the oil prices will continue at this level until June 30. However, with international prices surging the actual price should be somewhere over the Rs 200 per liter mark. As soon as Imran is out of office, the prices are likely to jump and then there will be unrest. At the same time, the dollar has crossed the Rs 184 mark, and is in a race with petrol to see which gets to the Rs 200 mark first. At the same time, Inflation measured by the Consumer Price Index (CPI) has been at its highest level since January 22, driven by a record rise in energy prices and food rates undermining earlier gains. And this is not a problem that is going to go away anytime soon, not even with a change of power at hand. As the finance ministry has pointed out, the global economy is facing three challenges including financial sanctions, commodity prices and supply-chain disruptions due to the ongoing war between Russia and Ukraine. “These challenges have fueled global inflation and downgraded the growth outlook in most countries,” it added in its report for the month of March. The PBS data show that food inflation is still on the higher side in the last nine months;
in urban areas, it shot up by 14.5pc year-on-year in March and 1.8pc month-on-month, whereas the respective growth in prices in rural areas was 15.5pc and 2.3pc.The PBS data show that food inflation is still on the higher side in the last nine months; in urban areas, it shot up to 14.5pc year-on-year in March and 1.8pc monthon-month, whereas the respective growth in prices in rural areas was 15.5pc and 2.3pc. With the political temperature rising and economic chaos to boot, we have a perfect recipe for agitation. It is a feeling on which Imran Khan has played before, and as the recently concluded show of power in Islamabad shows where the Prime Minister claimed to have hold of a letter proving foreign powers were colluding with the opposition to have him removed from office, he can still draw a crowd. When he is out of office, Mr Khan can very easily peddle this narrative among his supporters some more - especially since anti-imperialist sentiment does sell in this country. Armed to the teeth, Mr Khan could very well take to the streets while the melting-pot is hot and throw the country further into chaos. If he has any care for the situation the country is in, for he surely must have the understanding given he is still the nation’s chief executive, he will choose to take the higher road and fight a traditional electoral battle. However, if he is fighting more for his wounded pride than he is for the good of the people, then he will let loose the dogs of war and plunge the country further into the torrid waters already crashing at our shores. n
NEWS ANALYSIS
OPINION
Ammar H. Khan
Who is going to bell the cat: Increasing fuel prices
segments of population. By providing a subsidy of roughly PKR 30+ per liter, and by not collecting any taxes, the government is all set to expand its fiscal deficit, which may lead to a precarious fiscal situation by the end of fiscal year. To cover up for the deficit, we may see cuts in public sector development programs, just to subsidize fuel consumption for a few months. If the price of petrol would have been at a higher level, maybe I wouldn’t have taken a road trip. A higher price often results in behavioral changes, and demand destruction. A policy which subsidizes demand in an environment where supply is restricted, there is too much that can go wrong. recently traveled across the length of the country, cruising In absence of any demand destruction, fuel import bill would along the nine hundred kilometer stretch of the motorway netcontinue to increase due to higher prices and largely unchanged work, from Islamabad to Sukkur, followed by a brief interlude volumes, resulting in greater demand for US$ in a macro in land starved of development, eventually arriving in Karachi environment where we are already short of US$, resulting in within sixteen hours – all of this subsidized by the taxpayer pressure on the PKR. As PKR depreciates, second order effects of Pakistan. It takes about 150 liters of petrol for a one-way of fixing fuel prices earlier would start kicking in, as it will get journey. The government, despite increasing oil prices globally, more expensive to buy fuel, resulting in higher subsidy at the has kept the price of petrol unchanged in the range of PKR 150 per liter. pump. After adjusting for the increased price of petrol, and associated taxes, The political volatility in the country doesn’t help either, which are to be levied as one of the conditions of the IMF program, the as any decision to increase fuel prices will be construed as an fair ‘market’ price of petrol should be in the range of PKR 220 per liter. anti-populist decision, swinging an already wavering public However, devoid of any policy ingenuity the government has opinion to the other side. Once the dust settles, whoever it is at fixed the price of petrol at an unsustainable level, providing a subsidy of the helm will have to take the tough decision of nullifying the roughly PKR 30+ per liter, while also not collecting any taxes. In-essubsidy on fuel, and increasing taxation to buffer up the fiscal sence, for a round trip journey, the taxpayer theoretically subsidized position. by trip by roughly PKR 20,000 – an amount which would have been The Oil & Gas Regulatory Authority in its summary sent better suited for a targeted subsidy intervention for the most vulnerto the Prime Minister recommended a price of PKR 205.64 able segments of the population. A fuel subsidy is a blunt policy tool, per liter for the month of April 2022, proposing an increase of which predominantly subsidizes lifestyle of the rich, over the vulnerable PKR 55.78 per liter. However, the same was rejected by the Prime Minister. The recommended price nullified the subsidy while imposing taxes at reduced level, however, the same was rejected. It is estimated that on a base case basis, if international oil prices do not significantly reduce, the potential subsidy is The writer is an estimated to be PKR 100 billion per month, a colossal number which can be redirected to other worthy and independent high impact development interventions. macroeconomist and Considering the tight global oil market, stressed geopolitical scenario, lack of investment in oil exploenergy analyst. ration globally, and associated supply constraints, expecting a significant drop in fuel prices such that the subsidy would magically reduce would be a fallacy. Over the next few weeks, and hopefully not months, some tough decisions will have to be taken which would certainly be not be popular. It will be a bitter pill to swallow to carefully calibrate the already precarious macroeconomic circumstances. Delaying the inevitable can have disastrous consequences, similar to what a number of countries in the region are facing currently. n
The government has kept oil prices tightly coiled. Are they ready to jump?
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COMMENT
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OPINION
Uzair Younus Security and diplomacy - where do we stand?
sert that these are just a spate of attacks, the evidence suggests that things are getting out of control on the periphery and need urgent attention. In the coming months, the government in Islamabad will have no choice but to confront the threat head on. This will require urgent institutional, political, and societal alignment at a time when the country is polarized. With the country in political chaos, facing The crisis in Afghanistan is making things even worse and complicating economic and security challenges for Pakistan on its western the challenges will be even more difficult periphery. The Taliban has continued to provide safe havens to the TTP, which also threatens Chinese investments in Pakistan. The Taliban ver the last few weeks Pakistani citizens have faced has also refused to recognize the international border and clashes have a barrage of information regarding the ongoing previously erupted between the Taliban and Pakistani security forces. In machinations for power in Islamabad. Whether it is addition, the ongoing humanitarian crisis in Afghanistan is worsening mainstream television or print news, social media, or and having an economic fallout on Pakistan. The Taliban’s relations with WhatsApp, information is coming in at a relentless international actors are also not showing signs of improvement. and frenetic pace. Amidst the ongoing drama, however, not much The threats on the western periphery will have to be dealt with attention has been paid to what happens the day after and the while also focusing on reinforcing Pakistan’s key relationships, espechallenges the government, which is likely to be led by the PMLcially Saudi Arabia, China, the United States, and the European Union. N’s Shahbaz Sharif, is going to face from the onset. Two key issues High-level engagement with strategic partners like Saudi Arabia and will demand urgent attention: a hot western periphery and a cold China will be an immediate priority, mainly because Pakistan requires diplomatic front. economic assistance due to emerging external sector pressures as well as In 2021, 207 terror attacks occurred in Pakistan, a 42 percent financing needs to meet increased security needs. This assistance will also increase compared to 2020, according to the Pakistan Institute of be critical to ease the pace at which populist economic policies, including Peace Studies. The analysis points to a resurgent Tehreek-e-Taliban the recent cut to petroleum and electricity prices, are rolled back. (TTP), which carried out 87 of the 202 attacks, an increase of 84 Relations with Europe and the United States, which have been on a percent over 2020. Things have not eased in 2022, with the TTP declining trajectory for years and damaged after the way in which foreign recently announcing a Ramzan offensive soon after it conducted anpolicy has been leveraged for domestic political gains, will also have to be other terror attack which claimed the lives of at least six Pakistani repaired. This will require a tactful and below the radar engagement, prisoldiers. marily because any high-level engagement following a change of governThe TTP is not the only group that is spilling the blood of ment in Islamabad will surely be seen as evidence of a conspiracy. Pakistan’s brave young men who are serving on the frontlines and Senior-level engagement, including through phone calls or a visit trying to keep the country’s citizens safe and secure. Terror attacks to Washington, will immediately lead to domestic drama. The argument conducted by Baloch groups have also spiked, with reports indicatwill be that a new government, brought into power at the behest of the ing that since January 2022, at least 51 people have been killed and “international establishment,” is quickly finding a receptive audience in almost a hundred injured in at least 17 attacks in Balochistan. On Washington. An evolution in Pakistan’s position on Russia’s invasion of March 29, Pakistan’s interior ministry confirmed that terror groups Ukraine will be even trickier, not only because it must be assessed with are regrouping near the Iranian border in Balochistan. respect to the trajectory of Pakistan-Russia relations, but also because a While the Imran Khan government has previously tried to asrapid shift in stance will once again be seen as evidence of an international conspiracy. Achieving a diplomatic reset will be made problematic by the fact The writer is Director that counter-terror cooperation is likely to be the need of the hour in the coming weeks and months. With terror of the Pakistan groups becoming increasingly emboldened and capable, Pakistan is likely to require international support to push Initiative at the back against terror groups, especially IS-K. While the security establishment and a new government may be open to Atlantic Council, a greater cooperation, Imran Khan in opposition is likely to agitate over increased cooperation as well. Washington D.C.All of this means that a new government (which is the likely scenario at this moment in time) will have its work based think tank, and cut out. It will have to build consensus, stem the rising tide of terrorism in Pakistan, rebuild diplomatic ties, and seek host of the podcast greater economic and counter-terror cooperation at a time when the domestic political environment is not conducive Pakistonomy. He to cooperation. What comes next remains to be seen, but Khan’s opponents, if and when they are in power, are going tweets @uzairyounus. to have a very difficult time navigating the terrorism and diplomatic crises confronting them.
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COMMENT
By Asadullah Kamran
Wheat imports according to the same report are estimated to be 1.5 MMT in MY23 to make up for the predicted domestic shortage, whereas the work done by BR Research indicates a shortage of between 3 to 6 MMT, based on future yield predictions. Either way a wheat shortage is on the cards and how the government deals with it is an important question.
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his isn’t Pakistan’s first rodeo concerning shortages of critical commodities essential to sustaining a stable economy, in this case wheat. These shortages are addressed through imports at the expense of the taxpayers due to basic mismanagement and inability to make decisions addressing future concerns. We might be in for another episode. This year doesn’t seem to bode well for the country either, and we’re not really having a good start. The active political strife, rising global commodity prices, climate change and now to cap it all off we might be facing a wheat shortage in the upcoming months which builds on the already long list of issues. Wheat is absolutely critical for any economy, it’s essentially the fuel that keeps people going and in turn the economy going. We only need to look at Africa and realise the absolute importance of wheat in a country’s food security. Shortages have the potential to quickly turn into crises. It should be categorised as a top priority
FOOD
First time? Nah.
item considering the fact that Pakistan has a huge middle class population that spends a significant portion of their earnings on food (i.e flour). An increase in price of a critical commodity stokes inflation and reduces an individual’s residual income to be spent elsewhere, essentially having an adverse impact on the whole economy. “Due to lower area and reduced fertiliser application, marketing year (May/April) (MY) MY23 wheat production is forecast at 26.4 million metric tons (MMT), four percent lower than last year” predicts the report “Grain and Feed Annual” from the US department of agriculture.
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lthough generally speaking Pakistan is an agrarian economy just based on the figures of employment and overall contribution to the GDP. Then it would be safe to assume that Pakistan has the ability to address its domestic demand ? Wrong! There was a massive sugar crisis last year, kicking up a lot of dust in the political arena for PTI, not to mention the distress and difficulties consumers faced sourcing this daily used commodity. Likewise the Pakistani consumers have witnessed shortages in wheat as well, an equally important staple if not more. Pakistan back in 2020 had also imported wheat to the tune of 300,000 tonnes to ad-
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dress a growing flour shortage crisis. Likewise last year due to untimely rains in the harvesting season, compounded by a host of other factors caused another shortage triggering the government to import around 1.3 million tonnes of wheat. The continuous cycle of shotages is likely to persist and potentially aggravate in the future as well. Pakistan’s wheat output has not kept pace with local demand, causing the country to transition from a wheat exporter to a wheat importer. Climate change, a shortage of high-yielding research, population growth, water supplies, cultivable land and a little rise in support fees have all contributed to the shift.
Supply and demand
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onsumption is expected to reach anywhere between 27 to 30 MMT in MY23 depending on which estimates are used. According to the latest reports from the US Department of Agriculture the consumption of Pakistan is estimated to be at 27.6 MMT, whereas according to BR Research consumption levels are expected to be 30 MMT. As earnings rise and consumers change to greater protein intake, growth in wheat flour-based goods is declining. However wheat still remains the major grain, accounting for 72% of Pakistan’s daily calorie intake and a per capita consumption of roughly 124 kilograms (kg) per year, one of the world’s largest. The Federal Committee on Agriculture (FCA) established a target of 28.9 million tonnes of wheat output for MY23, up from 27 million tonnes last year. Contrary to that, wheat output in MY2023 is expected to be 26.4 MMT according to numbers from the US department of agriculture, down 3.6 percent from last year. This is due to a 2.2% decrease in harvested area to 8.98 million hectares which has been announced by the Ministry of Finance. Apart from this a slightly lower average yield has also exacerbated the matter. Farmers additionally experienced shortages and higher-priced inputs during planting and throughout the crop development phase. Consequently, lowering the area and yield forecasts. The application of urea fertiliser was also reduced due to a lack of availability and excessive pricing. Despite the government’s plan to achieve its production targets for the MY23 harvest, the GOP has offered a support price of Rs 1,950 per (40 kg). The new price is Rs 150 more than the support price of Rs 1,800 from previous year. The GOP expected that the price hike would encourage farmers to produce more, with the eventual objective of meeting the national production target for wheat and avoiding imports. Historical
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evidence has shown time and time again that the rise in the support price is insufficient to cover increasing fertiliser, energy, and petroleum prices.
The government’s attempt to meet targets
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he agricultural industry is critical to the country’s economic growth, food security, job creation, and poverty reduction, especially in rural areas. It contributes 19.2% to GDP and employs around 38.5% of the workforce. Due to this fact the industry is highly regulated, and farmers have to be educated on modern methods and techniques to maximise yields. This intervention has however upset the market forces of supply and demand that determine the price of a commodity. To encourage farmers to produce wheat the government offers to buy the excess stock at a predetermined support price. The current support price stands at Rs 1,950 which is up by Rs150 from the previous year. Although the price has been increased it hasn’t been enough to prevent a black market trade for the commodity. At present global supply chain issues, combined with the Russian-Ukrainian war where both countries have been international exporters for wheat, the prices are going up all over. This support price of Rs1950 per tonne is much lower than current international and local wholesale grain market pricing. The Federal Government is hesitant to raise the base price since it will be compelled to either raise the retail price of flour or increase the subsidy amount, neither is an ideal outcome. Resulting in smuggling across the country to get better prices abroad like in Afghanistan which is fast becoming a huge market for the local agriculture sector. An additional issue that has been adding pressure on the support price is hoarding and the farmers’ uncooperative attitude to selling their produce at the designated support price.
Solutions
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ow the government plans to overcome this shortfall has to be calculated and surgical to avoid any backlash from the opposition or the general public. It can be done through a number of ways that primarily rely largely on imports. The government organisation PASSCO (Pakistan Agricultural Storage and Service Corporation) is responsible for maintaining strategic reserves of the grain to avoid any shortages. However as things stand now according to government ministry officials
“wheat stocks in the country stand at 3.3 million tons”. Assuming a monthly demand based on the official annual target of FCA, this would mean a monthly demand of 2.4 million tonnes, our strategic reserves would barely last five to six weeks based on these estimates. The announcement by the Prime Minister to import two million tonnes of wheat from Russia echoed similar sentiments regarding an impending shortage; however, the news came without a set timescale and was regarded as a measure to shore up the country’s strategic stockpiles. Although as of now it wouldn’t be wise trading with Putin’s Russia in the greater interests of the nation regardless of price. According to BR Research, Pakistan’s wheat import cost can potentially reach $4.25 billion in the “worst-case scenario” for FY23, with the likely anticipated import bills ranging from $2.5 to $3.5 billion. These estimates are based on probabilities derived from historical trends. Although the import bill might leave a hefty dent in the balance of trade, it can be overcome. The main source of concern in a volatile commodities market, however, isn’t really variability in pricing. The willingness of suppliers on such extreme price levels to match demand of a state with a massive purchase order is where the issue lies. The government can alternatively place minor orders through traders, shoring up the reserves whilst keeping the interest of the suppliers. However, PTI at the moment does not have a lot of political capital to spare, and can face backlash in the likelihood that international prices go down in the future, essentially paralysing the government’s ability to make risky decisions. A long term and somewhat apparent solution to the issue would be if the government was to raise the stipulated support price to match the international market rate. Although at the moment the government is not in a position to be making bold decisions. By increasing the support price according to analysts at BR Research to the previous market equilibrium range of $300 per ton or Rs 2,100 per 40kg. The suggestion to increase the intervention price was based on the large price difference between international and local pricing, which had previously resulted in smuggling. The government has to make hard decisions and it shouldn’t be paralysed by fear from the opposition from making those decisions. At the moment the oppositions party as well as the ruling party are prioritising politics over national interests. Critical decision making processes should be given the utmost attention, especially when time is of the essence. n
FOOD
PBS just published updated data and estimated Pakistan’s unemployment rate at 6.3%. This is in contrast to recent headlines, where Pakistan was lauded for achieving the lowest unemployment rate - at 4.3% - in the South Asian region. So, why the difference? By Zunairah Qureshi
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he Pakistan Bureau of Statistics (PBS) on Thursday finally published the results for the 2020 - 2021 Labour Force Survey (LFS) which estimates the unemployment rate at 6.3%. However, only a week earlier, a Twitter post by the South
MACRO-ECONOMY
Asia Index stated that Pakistan with a 4.3% unemployment rate “outranks other South Asian countries with lowest un-employment rates in the region.” As the country was embroiled by political chaos, in the background the government attempted to continue to shine light on the successes of their term in power and PM Imran Khan did not miss the chance to highlight this post by retweeting it and adding that, ‘we
handled the Covid pandemic - better than all the countries in South Asia.’ So then why the difference in rates reported by this unverifiable Twitter page and the LFS data? Sure the post could be gimmicky but that’s not the only thing to consider here. The post lists down unemployment rates of seven countries (Pakistan, Bangladesh, India, Sri Lanka, Nepal, Bhutan, and Maldives)
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from the South Asian region among which Pakistan ranks the lowest at 4.3%. The South Asia Index, which appears to be nothing more than a Twitter handle with no verifiable associated organisation, claims that the reported data is taken from the World Bank database for the 2020 – 2022 period. However, following the cited link within the post itself reveals that the World Bank database only has data up to the year 2020 only. What’s more is that the database clearly indicates that the country with the lowest unemployment rate in South Asia is, in fact, Bhutan at 3.6%. This means that in 2020, according to World Bank data, Pakistan had the second-lowest unemployment rate at 4.3%, next to Bhutan. However, South Asia Index’s misleading post states Bhutan’s unemployment rate as 5% while rates for every other country are exactly the same as the World Bank estimates. Clearly, there has been an attempt at doctoring data to make Pakistan’s unemployment rate appear to be the lowest among the region and the Prime Minister plus the country’s foremost media and even business publications bought the bait. This presents an opportunity for us to learn to be more cautious when consuming statistics. Apart from the misleading data cited in the Twitter post, there is a lot more to be understood about how unemployment rates are calculated for each country and whether they are comparable. What is the difference between World Bank’s ‘modelled data’ and national estimates published by PBS. Citing World Bank may sound reliable but it is also important to trace where it sources its data from and how it processes this data before publishing it on its global charts.
First of all, can we evencompare unemployment rates?
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he unemployment rate is the number of people without jobs or those seeking a job within a certain reference period over the number of people that are part of the labour force. Although, given above is the standard definition for unemployment rate, each country may have different ways of calculating it and different methodologies for collecting data. The age-groups, definition of what is considered as labour, the reference period over which employability is checked, and inclusion of all regional areas, are some of the variables that affect the unemployment rate. These can be different for every country. For instance, unlike other countries
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the US official unemployment rate does not include armed forces. This and other factors combined mean that comparing the US unemployment rate with Pakistan’s rate would not give the most accurate picture. Within the context of South Asia, most countries like India and Sri Lanka, calculate the unemployment rate for persons aged 15 and above while Pakistan includes persons aged 10 and above. This would naturally overstate Pakistan’s unemployment rate in comparison to the other two in this example. However, within its labour force survey, Sri Lanka chooses a reference period of 15 days, while for India and Pakistan this is only one week. A reference period for the labour force survey defines the time before the survey is taken during which if a person is not employed and not seeking a job, he or she will be eliminated from the labour force and hence not represented as part of the unemployment rate. Since Sri Lanka has a longer reference period, its unemployment rate will be understated in comparison to India and Pakistan. Moreover, not all countries update data like the unemployment rate at the same pace. So, it is especially difficult to make any conclusive statements for current employment rates. Pakistan only very recently released data for its 2020 - 2021 LFS, which reports the official unemployment rate at 6.3%. Bangladesh’s Bureau of Statistics last
conducted a labour force survey in 2017 and India conducts periodic labour force surveys to report quarterly statistics on the labour force and unemployment rates. However, India’s latest quarterly update for the period of January to March 2021 that shows unemployment at 8.1% is not comparable to Pakistan’s or Bangladesh’s annual unemployment rates from the previous years. For such reasons, it is difficult to compare statistics like unemployment rates across countries. The International Labour Organisation (ILO) is a UN agency that compiles labour statistics of all countries. According to the ILO, ‘Regarding the international comparability of unemployment rates, there are a host of reasons why the statistics may not be comparable between countries… They (national statistical offices) may differ in their choices concerning the conceptual basis for estimating unemployment.’
Something called ILO modelled estimates
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et’s visit the World Bank database - which was misleadingly linked in South Asia Index’s post as reference -and see how they are able to graph the unemployment rates for South Asian countries. There are a couple of things that should be noted. For one, it is always wise to see where the data reported is being originally
sourced from. The World Bank database, as stated on the site, has extracted data from the ILO database. The ILO in turn, gets its data from official statistics reported by each country through its national data reporting systems. In Pakistan’s case, this data is published by PBS. However, since PBS’ most recent update for the year 2020 has not yet been incorporated by the ILO database, it is still sourcing data from the 2018 - 2019 LFS. Similarly, Bangladesh bureau of statistics last annual LFS was conducted in 2017. Then how come the World Bank shows data for every country up till 2020? This is because the World Bank is not reporting national estimates but something called the ‘ILO modelled estimates’. This is evident in the difference between the World Bank data and the PBS data for the years, that national estimates of unemployment rate have been published by PBS. So, even though the PBS’ LFS data for 2018 - 2019 estimated the unemployment rate at 4.8%, the World Bank and ILO modelled estimate reported it at 3.5% for 2019, which is a considerable difference. This is also why recent data shows that the unemployment rate for 2020 was 6.3% by PBS standards and not 4.3% as reported by the World Bank or the South Asia Index post in question. However, don’t get the wrong idea here. Neither of the estimates have to be ‘wrong’. Because at the end of the day these are just estimates and each has different ways of being calculated. What the ILO modelled estimate does is that it makes data like unemployment rate harmonised and comparable across countries. It does so by adjusting different national statistics for differences in methodology and calculation according to standardised conditions. This means that the data present in the World Bank database are primed for international comparison. In which case we can claim that according to ILO modelled estimates, Pakistan’s projected unemployment rate for the year 2020 was the second-lowest in the South Asian region but definitely not the lowest. It’s only a ‘projected’ estimate because you know, the official unemployment rate for Pakistan for the year 2020 was not available until last week. The ILO modelled estimates also actually do report projected unemployment rates for 2022 as well as 2023. However, the Twitter post in question did not refer to this since the statistics it reported does not match with this data despite its claim that its figures were from the 2020 – 2022 time period. According to projected ILO modelled estimates in the year 2022, Pakistan should have the lowest unemployment rate, at 4.2%, in South Asia. But in the same year India’s unemployment rate would have fallen (projectably)
This is also why recent data shows that the unemployment rate for 2020 was 6.3% by PBS standards and not 4.3% as reported by the World Bank or the South Asia Index post in question. However, don’t get the wrong idea here. Neither of the estimates have to be ‘wrong’. Because at the end of the day these are just estimates and each has different ways of being calculated to 5.4%, so the drastic difference that is visible in 2020 between the two countries – when India’s unemployment was estimated at 8% should no longer be. Bear in mind the data beyond 2019 for most of the countries is based on modelled projections. Out of the seven countries only Bhutan has so far published results of its 2020 Labour Force Survey and now Pakistan has too but we have yet to see how the projected estimate will change after the recent LFS update. Consider this: the PBS reported unemployment rate at 4.8% for the period of 2018 - 2019. This figure has greatly increased, undoubtedly owing to Covid-19 impact and overall economic conditions in the country so that the PBS estimate for 2020 - 2021 is 6.3%. However, according to ILO modelled estimates, Pakistan’s unemployment rate went from 3.5% in 2019 to 4.3% in 2020. While this is a hike up, it nowhere near reflects the difference in rates over the same period as estimated by the national Labour Force Survey. So, it’s clear that even though national estimates are not best for comparison, even modelled projections can only be confirmed for accuracy once national estimates are made available. This is specially necessary for the 2020 – 2022 period because of the unprecedented effects of the Covid-19 pandemic on the labour force. The ILO is of course aware of this and it gives the following disclaimer on its website, ‘Given the exceptional situation, including the scarcity of relevant data, the estimates from 2020 onwards are subject to a substantial amount of uncertainty.’
Remember to check the source before retweeting
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aming a Twitter something as official sounding as the ‘South Asia Index’ is smart because it makes it instantly seem external. People are less likely to question an ‘index’ that is covering the South Asia region and not just Pakistan. However, some probing into the Twitter
account reveals that it has no official website, any other social media account, or even contact. An authentically operated index would have to have a recognised affiliated organisation which is transparent in its methodology. In fact, it is hard to discern what exactly the index is indexing as its Twitter feed is currently over-populated by regular updates of the PM’s quotes to the opposition and vice versa. On the surface, the South Asia Index appears to report more hourly Pakistani news updates with a sparing presence of some developments in Sri Lanka and India. A quick look at the Twitter account’s 26,000 followers list also shows a majority presence of Pakistani followers. It wouldn’t be too forward to say that perhaps if the Prime Minister had not retweeted this particular tweet, it would not have made the news. To reiterate the takeaway, the fact that the new LFS report estimates the unemployment rate at 6.3% does not mean that the ILO modelled estimate of 4.3% is incorrect. Perhaps, ILO’s adjustment of the national estimate to internationally comparable standards is spot on. Perhaps it is slightly understated and will be revised in light of new data published by PBS. However, as far as comparisons are concerned, it can be said with some caution that Pakistan had the second-lowest unemployment rate in South Asia for the year 2020. And this is actually a good indication for Pakistan’s performance. After all, data shows that it has had a history of being among those countries that have lowest unemployment rates. It is also reflected through reported statistics that Pakistan fared better during the pandemic in comparison to other countries and it is not surprising that it managed to maintain its low unemployment rate. The recent LFS also reports that Pakistan’s economy created 5.5 million jobs in the last 3 years. If the overblown and misleading Twitter post would have chosen to report Pakistan’s performance as it is without making a desperate attempt at falsifying data, it would have actually done a better and more credible job at demonstrating Pakistan’s economic wins. n
MACRO-ECONOMY
Backed by Kleiner Pekins, former SAPM Tania Aidrus kickstarts digital bank venture Well-connected and well-liked, Ms Aidrus may be able to leverage her way to getting a digital banking licence from the SBP By Taimoor Hassan
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acked by international venture capital firm Keiner Perkins, former SAPM on Digital Pakistan Tania Aidrus is set to launch a digital bank, and may be one of the top contenders to get an early digital banking licence from the State Bank of Pakistan (SBP), Profit has learnt. Tania’s new venture, called D-Bank, has also reportedly secured the backing of another storied venture capital firm Sequoia Capital, which would be making its maiden investment in Pakistan in D-Bank. In a recent tweet, Tania disclosed that the Brazil-based Nubank was also backing her fintech venture in the seed round, without disclosing that her new venture is a digital bank.
Who is Tania Aidrus?
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conflict of interest was alleged by various parties when it emerged Tania was on the board of Digital Pakistan Foundation (DPF). The DPF was created to complement the Digital Pakistan Initiative (DPI) that would come directly under the Prime Minister’s Office, headed by Tania Aidrus. According to a report by ARY, Tania was unable to satisfy the PM on the role and circumstances under which the DPF was created and was therefore removed from her SAPM role. In December 2020, Tania co-founded Rayn Group as a technology advisory and investment company which is the parent company of the digital bank she aspires to launch. D-Bank, co-founded by Tania Aidrus and Khurram Jamali, both of whom worked at Google and later joined the Digital Pakistan Initiative, has among its angel investors and advisors former Google, global payments company Stripe, and crypto currency trading platform Coinbase officials.
The licence and the central bank
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t is pertinent to note that while Tania is a candidate for a digital banking licence, she has also been a regular on the panels organised on digital banks by the State
Bank ever since the regulations for digital banks were announced. Surprisingly, however, at none of the panels Tania or the SBP disclosed that she was seeking a licence for her digital bank. The inner workings and lobbying that is involved in the tech space in Pakistan is no secret, and Ms Aidrus is in a position where she does not need to use underhanded tactics to get a foot in the door at the SBP, since she already has a well-established relationship with the central bank from her time on the federal cabinet. At a recent panel moderated by Tania and attended by Governor Reza Baqir, D-Bank investor Kleiner Perkins’ General Partner Mamoon Hamid was also among one of the speakers. The said event, titled ‘The Promise of Digital Banks’, which was streamed online, had 5,000 registered attendees according to the central bank. At the panel which was moderated by Tania, she took the opportunity to ask Omer Ismail, the incoming CEO of NewCo which is a US-based fintech company backed by Walmart, what sort of companies should get the digital banking licence. Omer shot down the question by stating that he’d be overstepping his line if he suggested who should get a licence, and that it was totally up to the State Bank of Pakistan. Critics worry that without proper disclosures, the central bank does not appear to be acting as a neutral regulator and appears to be elevating a certain candidate for a digital banking licence. The central bank has to issue five digital bank licences this year and because the SBP is bound to evaluate each application on a competitive basis, the governor’s appearance at a panel with only one of the applicants for a licence is being construed as a tacit endorsement for that applicant. So if preferential treatment leads to a digital bank getting a licence ahead of others, it would enable that bank to wrongly get a first-mover’s advantage. “Tania is an aspirant so if you are only putting her on a panel, you are sending a message to the market that she is stronger, which is unbecoming,” a source said. “The SBP should have invited all the fintech companies and all the aspirants into
the audience. Tania or anyone else specifically on the panel looks like a pitch session for that particular candidate only,” said another one. No comment was received from the central bank on Tania’s appearance on SBP’s panels. Criticism has also been levied at the central bank for allowing the incumbent brick-and-mortar banks to bid for the digital banking licence. The full banking licence that these incumbents have does not constrain them from expanding the scope of digital banking services. According to a fintech expert, if the incumbent banks are competing for a digital banking licence along with fintech companies, it constrains the space for fintech companies from the very beginning especially since the digital banking licence will not be issued to all applicants. Some of the names that have emerged as contenders for a digital banking licence include HBL, Bank Alfalah, JS Bank, South African digital retail bank TymeBank, JazzCash, TAG and D-Bank. The central bank refused to disclose the number of applications received for the digital banking licence this year, nor did they confirm who the applicants were, when reached out by Profit.
The Digital Banks Regulatory Framework
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n January 2022, the State Bank of Pakistan announced a regulatory framework for digital banks under which it may grant two types of licences: Digital Retail Bank (DRB) or Digital Full Bank (DFB) licence for conventional and Islamic banking variants. DRBs will primarily focus on retail customers while DFBs can deal with retail customers as well as commercial and corporate customers. The process of obtaining a digital banking licence starts with obtaining a no objection certificate from the central bank followed by an in-principle approval. The qualified applicants will then move on to secure an approval for pilot launch followed by commercial launch upon SBP’s approval. n
DIGITAL BANKING
OPINION
Asif Saad
Let’s Shutdown the MBA program
rewarding disciplines. The highest paying jobs in the world are increasingly reserved for people with specific skills – such as data science or biotechnology or artificial intelligence or virtual anything! Second, there is an entire new working life patterned loosely as the ‘gig economy’. This is the world where people get to do specific projects or “gigs” for a certain time and then move on In a world spurred by technology, where to something else. I know so many bright, young and well- educated people who just don’t want to follow the 9 to 5 routine and specific skills are more in demand, the MBA are the happiest to move from one gig to another or do multiple is a waste of time and money ones concurrently. Some of them will eventually settle with one of these and build their entrepreneurial venture from it. ack in the eighties when I did my MBA, if you were not too Third, the entire concept of value creation has been transacademically inclined and therefore unable to study medicine formed over the years. The definition of success is much wider and or engineering, or ill-suited to the monomania associated with it is misleading to box it in traditional financial KPIs’. Marketing accounting (yawn), the MBA was a safe route to completing is not just about 5 Ps’ as digitalization has made it much more your education. sophisticated and as far as HR is concerned, it cannot do enough Doctors and engineers are still relevant, and so are accountants, to attract the most capable people to the corporate world. thanks to the ever-increasing bookkeeping demands of regulators. But I am Freedom, autonomy, creativity and similar values are more not so sure where the MBA fits in the current world and what we envisage sought after than before. It’s not that money is not important but of the future. people seem to be discovering new and different ways to acquire The MBA was a product of the heydays of industrial manufacturing wealth. Real financial value creation is now seen as the forte of and finance when post world-war 2, the western world developed via start-ups and entrepreneurs instead of c-suite executives. investments in industry and banking. General management was considered What about general management then? And leadership? important to run factories and operate businesses which cloned each other Don’t organizations want employees who are trained to be better in terms of business models. leaders? Of course, they do and should. But having an MBA is no The MBA allowed its finished product to have a common business guarantee of better leadership. Leadership skills are built over the parlance and equate performance with preconceived ideas of value creation years with diversity of experience and knowledge gained from measured by ROI etcetera across different sectors. It was also an age when doing multiple roles as well as working across different sectors. large corporates attracted the best talent and people stayed with one orIn fact, leadership role models now follow entrepreneurial ganization for their lifetimes. HR was thus required to fit individuals into success stories – people who have probably never even imagined a standardized regiment. Marketing was about the 4 Ps and more in sync doing an MBA. Just ask Elon Musk or Bill Gates. Many of the with the world of advertising and corporate communications. famous ones don’t even have college degrees! But this is not the world we live in today! To top it all, the advent of covid 19 has fast-tracked the To start with, we are now participants in the information age. Mantransformation of the education perhaps more than any other ufacturing and banking are still around but their position in the economy sector. Even as the world reopens, higher education is being has been relegated to a distant third or fourth or even lower depending conducted in a hybrid model coupling various online or distance on one’s perspective. Even within these industries, general management learning options with the physical classroom. Hence the value cannot add as much value as specialized skills developed by pursuing more associated with building important networks via the MBA is also losing ground. What then is the response from the business schools? While they probably still believe in the archaic education model, their recent impetus for executive eduThe writer is a strategy cation shows they are also feeling the winds of change. By developing more executive programs, they are consultant who has themselves showing the path forward for any specific knowledge which the MBA imparts, can be accessed previously worked at various via executive education. This is a positive trend and we should see it grow to replace the MBA in future. C-level positions for national The issue is even more significant for developing countries like Pakistan. It is absurd to continue to and multinational spend precious resources on qualifications such as the MBA. As a policy, these countries should instead corporations invest in decent liberal arts undergraduate programs and promote science, research and technology related specialized fields-of-study. Allowing business schools to continue to churn out plain MBAs’ who find it difficult to be meaningfully absorbed in this new world is no favor to their citizens. n
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COMMENT
By Shahab Omer
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nyone that has ever bought a car in Pakistan knows the struggle of what is colloquially known as the ‘on’ price. This is the extra money that a person has to pay to buy a car and drive it home straight away without months of waiting. Why this exists is a long and complicated story. In essence, it is car dealerships that book a large number of vehicles and then prey on the weak supply chain of auto assemblers in the country to hike up prices and make massive profits. It is essentially paying a premium just to have timely delivery. In the past month, even as Toyota, KIA, and others have raised their prices and more cars than ever have entered the market ‘on’ prices have risen. However, with the diversification of Pakistan’s car market and the emergence of new categories like the crossover SUV, will the trend of on prices continue, or is there a change in the offing?
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The state of the industry
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espite the depreciation of the rupee and persistent inflation in Pakistan, the last few months have seen a marked increase in production and sales of new vehicles. According to the data released by Pakistan Automotive Manufacturers Association (PAMA), during the first eight months of the current fiscal year, the sales of vehicles has increased 57.7%, trucks 82.2%, jeeps / pickups 51.5% and farm tractors 6%. According to the same data, vehicle sales in the first eight months of the current fiscal year increased to 149,813 units from 95,139 units in the previous fiscal year. One of the major reasons for this is the culture of ‘on-money or premium money’ in the automotive sector of Pakistan even today. When the new auto policy was introduced by the government, it was claimed that the policy would help eradicate premium money culture and in order to eradicate the culture in the policy, an additional tax of RS 50,000 to RS 200,000 was levied on vehicle registration.
For example, if a vehicle is booked in someone else’s name and the vehicle will be registered in someone else’s name at the time of delivery so, depending on the CC of the vehicle, additional tax of RS 50,000 to RS200,000 has to be paid. Under the policy, car manufacturers are required to deliver the vehicle within 60 days of booking, otherwise the company will be bound to pay the customer 3 percent interest per day with Kibor to the customer. Profit visited various dealerships of different brands of vehicles and, interestingly, all the popular vehicles in the market were either booked off or asked to wait four to eight months. Vehicles were booked on certain days of the month at Suzuki Shalimar Motors in Lahore whereas booking of the new Civic was stopped by Honda’s dealership in Township while the delivery time for the said vehicle was eight months. However, for the 1500cc and 1200cc variants of the Honda City, the time of delivery was to be four months. Similarly, Babar Abbas, sales manager of Toyota’s dealership on Walton Road, informed
this scribe that bookings were being made for Toyota Yaris and Altis. “However, Yaris will be delivered in June while Altis will be delivered in September. Both vehicles can be booked on the same CNIC whereas booking of vehicles will be done at the rate of RS 10 million per vehicle instead of full payment,” he said. Despite the insistence of Profit, the salesman refused to deliver the vehicle before time and said that now the system is online and he could not deliver the vehicle before time which means he doesn’t even have a car available on on-money. The same was true of Honda’s dealerships in DHA Lahore, with eight months for the newly introduced Civic and four months for the Honda City. Now if dealerships are not selling cars on premium money, then who is selling these cars in the market? Muhammad Waheed of Amjad Motors, located on Jail Road, gives the answer that in fact these vehicles are now being sold only to acquaintances by paying premium money or investors are selling these vehicles. “There are actually two types of new cars on the market. The first type is an open invoice vehicle owned by dealership companies. Each dealership has a specific quota and the company will provide more vehicles under the quota to the dealership which has more security deposit. The other car is in the investor’s name. The current situation is that if you buy a car with a dealership i.e. an open invoice car then you will not have to pay any additional tax on it but it is very difficult to get such a car from dealership. However, you will see these vehicles in different showrooms of the city and these showroom owners are either friends of the dealership or good acquaintances and the same showroom owners will receive premium money on these cars. Similarly, if you buy an investor’s car, in addition to the premium money, you will have to pay an additional Rs 100,000 to the government on registration. The dealership will no longer demand premium money as doing so risks canceling their dealership,” he said. Waheed further informed that at present only Honda City 1500 cc and Changan’s Alsvin are not being charged premium money in the city as their demand is almost non-existent. “My network is all over Punjab and all over Punjab, premium money of Rs 300,000 to Rs 400,000 is being demanded on the newly introduced Suzuki Swift at present. Similarly, premium money ranging from RS 700,000 to RS 1.2 million is being demanded on Honda’s newly introduced Civic. Toyota has increased the price of the vehicles but despite this, a premium of RS 300,000 is being demanded on the old invoiced Yarisand 500,000 on Altis while premium money of RS 200,000 is being demanded on new invoice Yaris and RS 300,000 on Altis,” he added.
The new entrants
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Company Car name Variant Toyota Corolla Altis Grande’ top of the line 1.8L Toyota Corolla Altis X autonomatic 1.6L Toyota Yaris AIV X CVT 1.5L Toyota Hilux Rocco Toyota Hilux Legender Suzuki Alto VXL Suzuki Alto VXR Suzuki Cultus VXL Suzuki Cultus VXR Suzuki Swift Top of the line Honda City 1.5L ASPIRE CVT Honda Civic RS Turbo Honda Civic Oriel Kia Sportage AWD Kia Sportage FWD Kia Sportage Alpha Kia Stonic EX+ Kia Picanto 1.0 AT Hyundai Sonata 2.0L Hyundai Sonata 2.5L Hyundai Tucson FWD A/T GLS Sport Hyundai Tucson AWD A/T Ultimate Changhan Alsvin 1.5L DCT Lumiere Changhan Oshan X7 FutureSense
ccording to Waheed, the investors in the market were demanding RS 1.2 million premium money on Toyota’s Legender while RS 400,000 premium money was being demanded on KIA Stonic. “Demand for Changan’s Alsvin, Proton Saga, MG has come down a lot in the market. People who visit our showrooms don’t even ask for the price of these cars, so how can we ask for premium money. The situation is that if you want to buy a car without paying premium money, first of all you will get the car after four to eight months and if you want to buy a car without paying extra tax on premium money, you will not get an open invoice car, you will have to buy a car from an investor, so those who trade in premium money have a profit in any case,” he added. A senior official of a Toyota dealership in Sialkot told Profit that every year when the government starts making decisions in the budget regarding the import of used cars, the car assembling companies in Pakistan give the same impression to the government that they are ready to deliver cars immediately, but in practice this does not happen. “Even today, cars are not being sold in the market without premium money. The government has taken some steps to eradicate this culture but those are not enough. Investors consider the on-money business a safe business. In this business, first of all let’s talk about the profit of the dealership. When the dealership orders a car from the company, it first displays the car on an open invoice in some other showroom of any acquaintance. The car is not sold at the dealership but at some other showroom and thus the showroom owner pays 60% of the premium money to the dealership. The whole deal is either done by the sales manager stationed at the dealership or the dealership owner is in direct contact with the various showrooms that is why dealerships do not have their quota car available,” he said. The official further informed that the vehicles of investors are also being booked by the sales managers of the dealership. “Normally,
Own 1.5-2 lac 2-3 lac zero to 50k 1.1 - 1.2 million 1.3 - 1.4 million (even sold for 2.7m own) 2.5-3 lac 1.5-2 lac 2-2.5 lac 2.2.5 lac none none 8-10 lac 6-8 lac none none 0 - 50k none 1-1.5 lac none 5-7 lac 5-7 lac 6-8 lac none none
cars can be bought for a sum of Rs 10 million at a time. In such cases, investors can book cars in the name of their relatives or register a private limited company and book as many cars as they want,” he said. Sometimes these vehicles of investors are sold at the dealership with the help of the sales manager and sometimes outside the dealership. This car falls into the category of used car. However, the investor deals with the buyer in such a way that he will get the car numbered, thus he collects the premium money of the car from the buyer. Profit contacted a man named Noman, who had an office in Gulberg, and was demanding an additional premium of RS 700,000 for a basic variant of the new Honda Civic. Noman also claimed that he would deliver the vehicle from Honda’s showroom near Kalma Chowk and the vehicle would also be on open invoice. However, investors, dealerships and showroom owners all over Pakistan, including Lahore, do not deliver instant cars without premium money. Yes, there may be some difference in the price of premium money in each city but this difference is very small. The culture of premium money will not be eradicated unless new vehicles are produced in the market keeping in view the demand and supply. On the other hand, when contacted, the official spokesperson of the Engineering Development Board (EDB) informed Profit that the companies are paying interest to the customers including Kibor for making late delivery, the data of which they are also receiving. n
AUTOMOBILES
The increase in number of esports tournaments with pool prizes worth up to Rs 20 million indicates growing potential in the industry By Zunairah Qureshi
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ohail Tanveer and other cricketers drafted into Pakistan Super League’s (PSL) silver category of players were paid close to Rs 5 million. What if we told you that is the same amount a few youngsters made by winning an esports tournament in January 2022? Earlier this year, Pakistan’s esports industry hit a new record with its largest ever tournament, organized by the middle-eastern esports organiser, Galaxy Racers. The tournament’s pool prize valued at Rs 20 million and the highest payout went to a team of five youngsters who won Rs 5 million for conquering the PUBG championship. And this is only one tournament, there are dozens that happen in Pakistan across the year, which are in addition to international tournaments that offer even higher in prize
GAMING
money, where local players represent Pakistan. The head of Galaxy Racers Pakistan division, Fakhr Alam has announced that he is aiming for a higher and higher cash pools in the coming years going from ‘Rs 20 million to 50 million and from there to 100 million.’ Tournaments and winning cash prizes are not the only way esports enthusiasts make money. There are other professions that stem off from the platform and this is only the start for Pakistan as the industry is steadily growing. Of course, comparing tournament winnings to a PSL salary is not exactly a tit for tat comparison. However, it goes to show the promise there is in an untapped industry that could become something major for a youthful Pakistan. The growth of the industry is consistent but it does have its challenges, especially considering that the country is still building its technological knowledge and infrastructure. It requires the right kind of environment for
which there is much to be understood about the nature of an esports industry. In any case, one thing is for sure, esports has been picking up in Pakistan and it is bound to flourish further in the coming years.
The industry’s scope in Pakistan
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sports started to surface in Pakistan around 2003 when it was based on gaming zone’s tournaments and what Mamoon “TeaTime” Sabri, Pakistan’s leading esports strategy consultant and international broadcast talent, termed as ‘grassroots level’ activities. He went on to explain that, ‘Then, around 2005 to 2007 we had Pakistani teams going into world cyber games. We’ve had a very long history of esports in Pakistan - it generally came in waves. So, from time to time a lot of money was invested into the local industry but it didn’t really pick up until 2015,
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2016 onwards.’ Sources have confirmed that the industry is relatively still quite small with Mamoon Sabri speculating that, ‘I’d be surprised to see if it’s making more than $ 1.3 million annually.’ However, there are positive sentiments around the industry’s fast growth as more and more international as well as local companies pour in. Most recently, Galaxy Racers, an Emirati-owned esports organiser held the biggest tournament in Pakistan’s history with a cash pool prize worth Rs 20 million. It was a large-scale two-day event, held in Islamabad in January of this year with some of Pakistan’s leading influencers such as Mooro and Junaid Akram present to promote the event. The event was televised live on Ten Sports, which was its official media partner alongside their cash prize sponsor, Mountain Dew. The tournament was also viewed through YouTube live streams. The tournament was held as part of a collaboration between Galaxy Racer’s with the government’s Special Technology Zones Authority (STZA), an initiative that encourages foreign investment in the local tech industry. In addition to other government officials like national security advisor to the PM, the event was also virtually joined by the President, Dr. Arif Alvi who commenced the ceremony by highlighting the importance of investment in esports for Pakistan’s large youth population. Apart from the tournament, TenSports and Group M, a leading media company, announced that Galaxy Racer will be launching Pakistan’s first esports league and in addition, also hosting nationwide inter-school and collegiate championships. Other notable events include Garena, a Singapore-based game developing and esports organising company’s biannual national tournament of their battle royale game, Free Fire. Each of these tournaments has a cash prize worth Rs 10 million, with the top prize-winning team bagging Rs 3.5 million. Garena hosts multiple tournaments and events around the year including city-wide and inter-university competitions. A number of companies and initiatives have been launched in Pakistan in the past five to six years including Riot Games local division and Telenor’s Gamebird esports platform. Other foreign companies which have shown interest in the industry include Next-Gen Games and the Hong-Kong based NODWIN Gaming. Esports Pakistan is a local group that helps organize esports events and has acquired dedicated gaming arenas with computers and gaming consoles for the purpose of hosting tournaments.
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Esports is not simply about the revenue generated
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he thing about the esports industry is that it isn’t just valued by how much it makes. This is because it also offers opportunities for the youth to express their diverse talent and skills, while making an earning off of it. Zafeer Khan, Community and Esports Manager, Free Fire Pakistan shared that, ‘The direction we are headed in is to support the youth in developing esports related career paths. Even in terms of gaming streams, we are still small-scale but we are getting there. The culture is definitely there.’ Free Fire Pakistan and other organisations also support local teams in making their way to international tournaments where they represent Pakistan. The winning team of the national tournament this year is all set to participate in the Free Fire World Series to be held later this year in Singapore with a chance to take home sums from the pool prize worth $ 2 million. According to some sources, Pakistani players made around $ 2 million in winnings last year. Based on data from esportsearnings. com Pakistan ranks 31st globally in earnings valuing at a total of $ 4,866,000 made by 293 players. Esports and gaming have also contributed to other niches like the content creation and game streaming markets. Although very difficult to succeed in, according to Mamoon Sabri, esports strategy consultant, anyone with 200,000 above subscribers could easily make around $14,000 through a single sponsorship. There are also unofficial tournaments held by local groups who organise esports competitions on their own capacity through online forums and Facebook groups. They charge registration fees which according to one professional PUBG streamer and esports competition organiser, does not make a profit for them since it’s taken up by organising costs and cash prizes. However, according to Mamoon Sabri, even these unofficial tournaments benefit the game companies as engagement with their games increases. Viewership and broadcasting are prominent parts of the esports experience. In fact, Sabri went on to say that, ‘Number of players is not what an esports company is looking at as a crucial metric. Players don’t generate revenue for a company. It generates money from other people who are watching the tournament, recognizing and being more involved with the game, because there are more points of focus.’ He elaborated by comparing esports to any other televised sport like football or cricket where the wider public has stakes
and interest. Their support for the teams and attention are what generate revenues. Zafeer Khan from Free Fire was hopeful that, ‘I think very soon you can expect to see live broadcasts of esports by our major sports channels. Because the government is interested. The population is interested. Corporates are interested in partnering up with us. The direction for this industry is just towards growth.’
Understanding the growth of esports
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he industry has been growing at a steady pace with the number of players increasing, more investment coming in and the number as well as the scale of tournaments expanding each year. The Free Fire team told us that they started off in 2018 with smaller competitions and what initially used to be a prize pool for the national tournament worth Rs 2.5 million grew to Rs 10 million this year. In terms of human resource capacity, a few companies have established their offices in Pakistan like Tencent Games and Free Fire, the latter with around 25 full-time employees and further 200 contractual workers through agencies. Mamoon Sabri told Profit, ‘Most of the companies’ employment and work is done through agencies but right now there aren’t many of these that specifically cater to the skills required for the esports industry. More and more esports companies and agencies are coming in and I think the industry can create 3000 jobs in the next seven or so. If everything goes right, it will probably manage to do so in five years.’ However, the same cannot be said about esports players. Sabri explained that like any other professional sport, professional esports players and successful ones at that, are difficult to come by. ‘At present there are very few professional players, maybe under 10 or so. Semi-professional players have grown a lot in the past few years though.’ While esports companies are more optimistic citing Pakistan’s ‘70% internet penetration among its 70% youth population’ for increase in esports gaming, Sabri did not believe it’s that simple. While professional players can make a full-time income, semi-professional players get by with around Rs 17,500 which is minimum wage. When talking about professional players though, of course, there’s a lot of investment that goes in. For instance, using the newest released phone that not everyone can afford. Same goes for gaming content creation or streaming, which requires expensive equipment, and particular skills. It also requires one to compete on a global platform with many
others and undoubtedly, the opportunity cost of choosing to make it as a professional esports player or streamer is just very high. For these reasons, Mamoon Sabri said that, ‘I wouldn’t say this is a viable career path. It’s not actually as accessible as it is mistaken to be.’ When asked if the number of professional players making a living out of esports could possibly grow to four-digit figures, he gave a resounding ‘no’ in response and said that, ‘What sport has 500 athletes playing for a living? Maybe five years down the line we can have 500 people playing for a living but four-digit is very difficult.’
But of course, there are challenges
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hile the esports industry has undoubtedly grown, there have been hurdles along the way that impeded it and even now a lack of understanding among investors and other relevant organisations slow the process down. According to one source in the industry, ‘We were a booming industry and even became a location for the Counter Strike World Cup but because of mismanagement and corruption we were sidelined until recently when all these giants jumped in.’ Sabri told Profit that, ‘Earlier on, foreign companies would hold tournaments in Pakistan but then someone would run away with the money and this cycle kept repeating for some time.’ Then, there is also the challenge that existing tech companies and investors or even the government for all its interest in esports does not fully understand how to spearhead the growth of esports, which like any industry,
requires its own specialised mechanisms and facilities. Presently, existing companies have been trying to develop an esports ecosystem through what they call as ‘work at the grassroots level’. This refers to their attempts at engaging university students, offering training, scholarships, and providing the platform. Tencent Games, which is the largest Chinese video game publisher and runs PUBG mobile in Pakistan is the esports company that is currently operating on the largest scale locally. With an estimated 15 million players and partnerships with the government and brands like PSL’s Lahore Qalandar team, PUBG has become quite popular in Pakistan. ‘PUBG has done a great job at marketing. They put out like, you know, songs with big artists. The cultural elements that they strive to maintain is very good,’ commented Sabri. ‘However, while they have done some great things, they have also been very damaging for the industry.’ He explained that this is a simple business tactic that is only expected of a ‘behemoth’ company like Tencent Games. ‘Tencent is like FIFA for PUBG. The way FIFA is for football, where they operate the global circuit in every single way. So Tencent will never want their global championship to not be the biggest championship.’ It is because of its size that the company has managed to gain control over the international circuit and exclusively owns whatever esports infrastructure there is in the country since there isn’t already an existing one like in Europe or other regions. This makes it harder for other companies and especially newbies to enter the industry. Another way Tencent maintains its dominance is by ‘selling exclusive sponsorships for major sponsor categories. They can have an easier
time monetizing when they have a monopoly over things. And even in Pakistan, we have seen this happen, which is that in the past years, Tencent has partnered up with certain smartphone providers as PUBG’s exclusive sponsors.’ Mamoon Sabri further explained that, ‘What that means is that if I want to run a tournament, I can’t get a sponsor from anyone that isn’t that smartphone provider. Revenue through sponsorship, even internationally, accounts for 79% of revenue across esports. We don’t have direct monetization for third party operators, especially. So then if I want to operate a tournament, I don’t have any choice.’ Tencent as a company is working towards its own gain, as Sabri put it, ‘They are doing a great job for themselves. It just isn’t doing a great job for the Pakistani industry but it isn’t beholden to do so. That’s Pakistan’s issue.’ It’s true that no company has a responsibility towards nourishing Pakistan’s industry but PUBG Pakistan has on occasion peddled the marketing narrative that it works to promote the Pakistani industry and has also collaborated with the government on certain programmes. Profit tried to reach out to Tencent Games local office multiple times for their take on the story but received no response. It’s clear that Pakistan’s esports industry is growing and brimming with potential. What it needs is a proper structured system that can help it take off. Gaming and other technological sectors are often recognised among the country’s most promising areas for its developing economy owing to Pakistan’s youth bulge phenomena. But it all comes down to how seriously the relevant bodies and people can take creative professions like gaming. n
GAMING
By Ariba Shahid
Can malls ever be replaced?
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hat do you do for recreation in Pakistan? Most people will respond by saying they eat out, go to the mall, sometimes a park or club, or play a sport. The number of recreational spots for Pakistanis is limited and therefore families often find themselves at a mall or an eatery. This trend itself is enough to show you that malls are here to stay. A shopping mall is a large enclosed shopping center that houses a number of retail outlets, department stores, food outlets, kiosks, and activity areas. The term “mall” originally meant a pedestrian promenade with shops along it. However, following the 1960s, the term mall started being used for large enclosed shopping centers that had grown popular at the time. Over the years, malls have evolved from just a collection of shops into a recreational destination where families come and spend time together. For most people shopping is a visceral experience where individuals like to make use of their senses of smell and touch as well while making a purchase. For instance, buying a bottle of perfume online may be fun, however, going to the mall and actually smelling it, feeling the bottle, etc makes the experience enjoyable, especially for a first time purchase. Similarly, while buying clothes, it makes sense to see and feel the fabric in person. You’re not able to look at the design and how it would look on you over the internet the way you can in a physical store. Keeping that in mind, people are likely to continue with in person shopping at physical stores.
How are malls different?
However, malls are different from just stores. “You have to be more than a collection of shops,” says Faisal Nadeem Riaz, a director at Dolmen Group while addressing an audience at the Future for Retail Summit 2022 organized by Terabizz and Chainstore Association of Pakistan. “Retail is not just about the product any more, it’s about the experience,” Riaz adds. Malls have turned into socialization hubs. Shopping had always been a social experience
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that people liked doing with friends and family. However, with the existence of malls, it grew as there would be something for everyone in a group to look at. Online shopping, however, is better suited to those that don’t think of shopping as a socialization activity and prefer to do it on their own. Such people are more likely to shop alone online in the comfort of their homes. Moreover, for individuals that place immense stress on instant gratification, malls or in person shopping. Deliveries often take time when you order online, however, when you buy at a store not only do you get instant gratification, but also get to experience the prodiuct through your various senses of touch, smell, etc. You also don’t have to worry about calculating shipping costs, entering your address, worrying about who is going to be home when you get the product. More importantly, you don’t have to worry about the hassle of getting the wrong product, size, etc and getting it exchanged through courier services. All this, however, has been push factors for physical store shopping, and not entirely malls. Malls are more than just a shopping experience. Riaz explains, “Instagramable content is important for the success of a mall.” What this means is people go to malls and like to tell people that they are at a mall, or like the experience of one. It makes shopping, an activity where you’re parting with money, a happy one. Think of it this way. Almost every time you go to a mall you’ll notice mall activations or BTL activities. Sometimes they’re sponsored by brands, sometimes by the mall management itself. Why? So you are lured into the mall and then spend more time there. Malls are theoretically designed to make you spend more money. The layouts are confusing so you get lost and walk through more of the mall than you had intended to, especially because the more stores you visit, the more you’re likely to spend. This is also why the food courts are on the top floor so you stop by stores as you make your way up. Malls rarely have general seating areas. If you want to sit, you’ll either have to sit in a store or the food court. This again drives you to spend more. Clustering similar shopping categories also helps push sales as while you may resist one store, do you have the strength to resist more? To mess with you more, you’ll also find that malls do not really have clocks so that you lose a sense of time. Basically, the longer they keep you around, the more likely you are
to spend. Lastly, have you ever wondered why malls have activations, BTL activities, concerts, book signings, and events? The purpose is to lure you into the mall. Once you’re there, you’re likely to stick around and potentially shop. This is shoppertainment. Essentially all this is done to prop up footfall which is used as a metric to gauge purchasing opportunities that present themselves. Not everyone that enters the mall ends up buying something, however, the more people that enter, and the higher probability of making a sale. Shoppertainment isn’t a new concept. The term popped up in the early 1990s, however, the concept has existed for decades. It is the provision of entertainment or leisure facilities within a store or mall as a marketing strategy. This is done to attract customers. However, with the world going digital through the use of ecommerce, one wonders how ecommerce sites can lure in customers through entertainment.
Will ecommerce take over mall customers?
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hamoon Sultan, Chairman Khaadi explains that the shopping experience is essential for retaining customers. “There are three types of customers, ones that go to the mall, standalone retail shops, and those that shop online. The ones that go to standalone shops are more likely to move to ecommerce than the ones that go to malls,” explains Sultan. What this means, is that people that go to stand alone stores know what they want and go and pick it up. They want a no nonsense shopping trip that is far from the BTL activities, tantalizing smells of the food court, and the sales at other retail outlets. All they want is to go into a particular store without walking through a maze and get their product. Such individuals are likely to pick up on online shopping and use it. However, individuals that like the whole shopping experience and see it as more than just buying a product will continue going to the mall. Shamoon explains that this makes it essential for businesses to improve their ecommerce channels and also work on their retail store front. Sultan however feels, “While businesses have to build ecommerce channels, they will not be on the frontline.” He also adds that Malls now need to set up ways in which they connect online channels with offline channels. n