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CONTENTS

11 How will Pak-Turkey trade ties be bolstered? 15 What’s up on the PSX? 18 The edible oil saga

25 25 Can coalitions push through reforms? Uzair Younus 27 A cruel summer ahead Ammar H Khan 28 The 650bn rupee question: will monetary tightening bridge the divergence between monetary and fiscal policy?

31 31 ezBike: Revolutionizing Mobility or Just another startup?

Profit

35 How the branding game has changed in Pakistan

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

Readers Say Tough time ahead for startups. Stay put and work on the basics! Apropos: Startups beware. The worst is yet to come @KanTaimur, Twitter

burgeoning non development expenditure for which government is seeking bail out packages to pay current liabilities. Apropos: Tough reforms ahead Samiullah, Website

How many global recessions are required to prove that capitalism is the real problem? Apropos: Startups beware. The worst is yet to come @RantingGareeb, Twitter

He's no doomsayer, nor does he indulge in hyperbole and sensationalism. So when @UzairYounus says "[f]rom Karachi to Skardu, a volcano is showing signs of eruption" it's worthwhile to read carefully and find out what he's trying to say. Apropos: Tough reforms ahead @KhurramHusain, Twitter

A brief and concise opinion on why the sudden workforce and operation cuts by Airlift and as of recently Swvl. We might see the same thing happening to many more in the startup ecosystem. Apropos: Startups beware. The worst is yet to come @ali_nauman29, Twitter If they are operating in big cities and closing down in smaller ones, it has to be for the riding fuel prices. The scattered smaller cities are not economically viable, as compared to densely populated bigger cities. Apropos: Startups beware. The worst is yet to come @zdarugar, Twitter The message this thread is trying to get across is spot on. The condescending kitten-and-milk analogies, however, were quite unnecessary. Apropos: Startups beware. The worst is yet to come @MahatmaaGaanji, Twitter @taimoorhassann not sure if you remember the interview from December, 2021 where I told you that 2022 is not going to be bigger than 2021 and it was a surprise to so many! You are right. What feeds VC fundings is high valuations and that is simply no longer there! Apropos: Startups beware. The worst is yet to come @ahmeduzair85, Twitter While Airlift has been the talk of the town in recent days, startups that received only seed money will be worst hit by the crisis. Most of them have yet to figure out their business model. Apropos: Startups beware. The worst is yet to come @AnarchistPK, Twitter

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The 1% and special interest groups will remain the beneficiaries of this rigged system, until they’ve squeezed out whatever they can and it collapses overnight. Pakistan is heading towards default, oil prices have gone higher (and could go higher still), the gov is still subsidizing fuel. The IMF needs to demand a complete removal of the subsidy. Apropos: Tough reforms ahead Anonymous, Website Good analysis but why analysis missed out on government dysfunctional Bureaucracy and it’s

There has always been an inherent moral hazard with IMF funds that foster state level dependency culture with little incentive to reform. - despite tough on paper conditionalities. No pain-no gain. Given the current election cycle assume a one tranche government at best. Apropos: Tough reforms ahead @Investor_4success, Twitter The last paragraph seems a bit too mild, in fact, too optimistic. The abrupt regime change, razor thin majority, lack of expertise, and that the set-up is only for a few months won’t allow it to go for reforms or think about quick decision making. Apropos: Tough reforms ahead @kakekhel_salman, Twitter Fuel is still being subsidized, if it wasn’t then prices would be higher than they are today. This price rise was a very small step in reducing a fraction of it. “A sovereign with a GDP of more than US$ 380 billion, which has posted growth rates to the north of 5 percent during the last two years isn’t really going to default on an amount less than 1 percent of its GDP, or just about equivalent to a month of remittances. This is more of a liquidity issue, rather than a credit issue.” When you have a very expensive fuel subsidy in place (hundreds of millions of $ a month) and you need to borrow more cash (to pay for that and pay off other debt) and raising cash from the bond markets is now a no go zone, that is a credit issue. Apropos: The case against sovereign debt Anonymous, Website I think the author has missed adding interest on external credit. Even the multilateral and bilateral donors would want the interest on the loans to be paid on time even if the principal can be restructured. That interest would add up to another $3 billion & hence Pakistan has to repay $6 billion this fiscal year. Also the Paris club has already deferred the loan payback 2 times. I think this time they might not agree to restructure and if that happens, Pakistan has to adjust $9B. Apropos: The case against sovereign debt Anonymous, Website

COMMENTS

Corporate Update Pakistan’s first ever pet food donation platform by Waggles

Truck-it-in lays off 30% of its employees

Pakistan’s first premium natural pet food brand - Waggles - launches its donation platform to facilitate animal rescue shelters. In collaboration with the registered animal rescue shelter in Pakistan, the program is oriented to create a holistic, meaningful and sustainable donation platform to empower the animal rescue ecosystem in Pakistan.

In a major turn of events, Truck-it-in, a major player in the Pakistani logistics industry with tech-enabled services, has laid off approximately 30% of its workforce to curb the economic downturn caused by the sky-rocketing oil prices. According to some sources, the logistics company is paying employees “generous” severance packages as it fires them as part of its “business optimization” plan.

Faysal Funds launches mobile application to facilitate its consumers One of the largest mutual funds in Pakistan, Faysal funds - a subsidiary of Faysal Bank Limited - launches its first investor-friendly and user-optimised mobile application to enhance investor autonomy. The application would allow investors to Invest, Withdraw and Convert as per their own will, streamlining the processes and enhancing efficient investing. The application offers a wide range of services including browsing investment information, comparing different funds and check every funds Net Asset Value (NAV).

Foodpanda appoint Muntaqa Peracha as its new MD Muntaqa Peracha, the former Commercial Director of Foodpanda Pakistan has been appointed the new Managining Director who will oversee foodpanda’s overall operations in the country, growth and expansion, as well as the launch of new verticals. Muntaqa had served as the Commercial Director for two and half years before accepting his role as the MD, he has played a critical role in vendor management, customer relationship management and rider management. Muntaqa has been the engine behind Foodpanda Pakistan’s growth taking the company to a leading food and grocery delivery platform in the country. He also expanded the foodpanda Home Chefs programme to more than ten thousand registered home-based businesses today, and launched new verticals such as cloud kitchens and pandago, and foodpanda’s Logistics-as-a-Service vertical that provides express, on-demand deliveries.

Record Tax collection in Karachi amounting to Rs 1.39 trillion During the period July 2021 to May 2022, Karachi has witnessed record tax collection amounting to Rs 1,396,189 million, showcasing a growth of 41% Year on Year. This is 9.1% in access to the overall budget assigned to the Large Taxpayers Office (LTO) karachi assigned at Rs 1,279,205 million.

Swvl shuts down daily ride services in Pakistan Popular bus-sharing service Swvl announced on Thursday that it would be “pausing” daily rides within Karachi, Lahore, Islamabad and Faisalabad from Friday (June 3) “in light of the global economic downturn”. Amidst the global economic crisis, Swvl has vowed to break even by 2023 and for that purpose seeks to reduce its workforce by 32%. The company looks to automate its operations, enhance its efficiency and reduce central costs to set out on its path to profitability.

Foodpanda to train home chefs in collaboration with Punjab Food Authority With the objective of improving food packaging and uplifting hygiene standards during food preparation, foodpanda partnered with Punjab Food Authority (PFA) with the purpose of training Home chefs vis-a-vis enhanced safety protocols and government SOPs.

Karachi to get its first IT park With the objective of improving food packaging and uplifting hygiene standards during food preparation, foodpanda partnered with Punjab Food Authority (PFA) with the purpose of training Home chefs vis-a-vis enhanced safety protocols and government SOPs.

Pakistan to host first ever google flagship gaming event The Ignite National Technology Fund is organizing Pakistan’s first ever Google’s flagship event for its gaming industry called ‘Think Games Pakistan 2022’ to take place on 21-22 June 2022. The event is free for gaming enthusiasts who will learn how to win Google cross-product solutions, and how Google can support their game’s lifecycle from ideation to creation to expansion.

IN BRIEF Miftah Ismail has ordered the import of edible oil from Malaysia and Indonesia to ensure smooth supply of the commodity to the consumers and stabilize its price. He has also directed steps to bolster domestic production.

Moody’s Investor Service downgraded Pakistan’s outlook from stable to negative, citing “heightened external vulnerability” and uncertainty around securing external financing to meet the country’s needs.

Pakistan on Friday imposed a 10 per cent regulatory duty on the import of petroleum products from China after a massive 673pc surge in dutyfree imports to Rs250 billion this year with a revenue loss of Rs25bn under the garb of the CPFTA.

Pakistan and Turkey will constitute a Joint Task Force under the coordination of their commerce and trade ministries to develop a comprehensive roadmap, covering the issues connected to bilateral trade after a meeting between the two countries’ chief executives. Defending Pakistan, Acting Governor State Bank of Pakistan (SBP) Dr Murtaza Syed said the country is not Sri Lanka, and that Pakistan had never defaulted before and would not again.

The bus-sharing service Swvl has announced it will be “pausing” its daily rides within Karachi, Lahore, Islamabad and Faisalabad starting from Sunday June 5, 2022. However, the service has informed that Swvl Travel rides (city to city) and Swvl Business rides (business to business) would remain fully operational.

After the exit of CEO Nauman Sikandar Mirza foodpanda has appointed Muntaqa Peracha as Managing Director (MD) for foodpanda Pakistan. Muntaqa will oversee foodpanda’s overall operations in the country, growth and expansion, as well as the launch of new verticals.

How will Pak-Turkey trade ties be bolstered? By Ghulam Abbas

akistan and Turkey reviewed the proposed Preferential Economic Agreement (PTA) in products on Thursday in order to promote trade liberalisation and bilateral trade. According to a statement issued by the Ministry of Commerce, both parties stressed the necessity of completing the PTA in goods as soon as possible since it would open up new chances to expand bilateral trade across all sectors and would be mutually beneficial. During the last 25 years the exports of Pakistan to Turkey have increased at an annualised rate of 4.01%, from $148M in 1995 to $394M in

2020. In 2020, Turkey exported $630M to Pakistan. The main products that Turkey exported to Pakistan were Hot-Rolled Iron ($53.5M), Compasses ($38.5M), and Non-Retail Pure Cotton Yarn ($36.1M). During the last 25 years the exports of Turkey to Pakistan have increased at an annualised rate of 8.11%, from $89.8M in 1995 to $630M in 2020. In 2020, Turkey did not export any services to Pakistan. In 2020, Pakistan exported $394M to Turkey. The main products that Pakistan exported to Turkey are Electric Generating Sets ($92M), Heavy Pure Woven Cotton ($79.7M), and Non-Retail Pure Cotton Yarn ($31.9M). During the last 25 years the exports of Pakistan to Turkey have increased at an annualised rate of 4.01%, from $148M in 1995 to $394M

in 2020. In 2020, Pakistan did not export any services to Turkey. In 2020, Pakistan ranked 93 in the Economic Complexity Index (ECI -0.71), and 65 in total exports ($25.5B). That same year, Turkey ranked 38 in the Economic Complexity Index (ECI 0.58), and 29 in total exports ($177B). Speaking with Pakistani and Turkish business persons, Commerce Minister Syed Naveed underlined the importance of increasing business-to-business interactions in order to develop trade and investment links between the fraternal countries of Pakistan and Turkey. During Prime Minister Muhammad Shehbaz Sharif’s visit to Turkey, the Ministry of Commerce co-hosted a business-to-business meeting attended by about 150 Pakistani and

Turkish business people, dealers, and investors. The delegation of Pakistani business people, assembled by the Ministry of Commerce and Trade Development Authority of Pakistan, represents sectors with significant export potential to Turkey, including engineering, agro-food, pharmaceuticals, rice, information technology (IT), textiles, and others. Syed Naveed Qamar, Federal Minister for Commerce, who is accompanying the Prime Minister, also met with his Turkish counterpart, Dr. Mehmet Mus, Minister of Commerce, and discussed how to improve bilateral trade.

The petrol price hike necessary if painful

he federal government has decided to raise the price of petrol by another Rs30, taking it to its highest ever Rs209 per litre, to meet the International Monetary Fund (IMF) demands. The federal finance minister Miftah Ismail on Thursday night announced that the federal

government has decided to raise the prices of petroleum besides ending the tax amnesty for the construction sector announced by the last PTI government. The new price of petrol, after the latest hike, will be at Rs209.86, diesel at Rs204.15, kerosene oil at Rs181.94 and light diesel at Rs178.31, he announced and the new prices will come into effect from midnight tonight. The Finance minister said that the government is still facing a loss of around Rs9 in petrol despite a hike of Rs30 as we are not collecting any tax on the fuel. He said that the government will reach an agreement with the IMF in June and we are making negotiations with the lender on a daily basis. The IMF had demanded to withdraw subsidies on petrol and electricity, he added. Miftah also said that the government will have to end the subsidies announced by the last government, however he claimed that the government will not impose any new tax in next year’s budget. Miftah also said that the PTI government took huge loans in the last four years

comparable to loans taken by successive governments in the last 71 years. He also said that the government will not increase tax on salaried classes in the next budget. The finance minister said that Pakistan has also requested the IMF for extension in the program. According to him, the lender is agreed as Pakistan will start repaying the IMF loan from next year so it’s important to us to be in the program. In one question, he said that the one month expenditure of the government is Rs 40 billion and if we minimised the expenditure then we can reduce just Rs4 billion. He again reiterated that the government will not impose any new tax in June and the government of Pakistan cannot sell the petrol at a loss. The finance minister said that Hammad Azhar wrote a letter to Russia and when Imran Khan returned back to Pakistan they wrote a letter asking for gas as well as wheat on discount but the Russian never replied so far. Pakistan would be open to buy Russian oil at cheaper rates if the opportunity arises, provided that no sanctions are imposed because of the deal, he maintained. n

Real estate sector demands provincial govt step up By Shahzad Paracha

akistan’s Real Estate sector has asked the government to transfer the decision of determination of Property Valuation from federal to provincial governments. Pakistan’s Real Estate sector in its budget proposals for the next fiscal year asked the federal finance minister to exclude Section 68(4) of Income Tax Ordinance 2001 immediately besides Property Valuation should only be done by Provincial Govt who are already practising it and capable of doing it as they already have Field Force Revenue Department. Similarly, the provincial government is charging Stamp Duty according to their DC Rates and It is suggested that the Federal government should also charge Gain Tax/Advance Tax according to their DC Rates. Meanwhile, Property Valuation should only be done every year and once in a financial year. The real estate also in its recommendations stated that presently Filer is paying 1% and Non-Filer is paying 2% advance income tax on the purchase of the property. It is suggested that this tax should be reduced

to 0.25% for ‘Filer’ and for non-filer it should remain 2% because the advance tax can be claimed in a tax return by ‘Filer’, it will be helpful to increase the economic activity in

the country. Capital Gain Tax-(236-C) For Immovable Property Presently Sellers (Filer) are paying 1% gain tax at the time of transferring

the property and 2% by the ‘Non-Filers’ it is suggested that for ‘Filer’ it should be reduced to .25% (point Two Five Percent) and for non-filer, it should remain 2% (Two Percent). Capital Gain Tax- For Immovable Property The maximum period for determining gain tax may be fixed at 3 years instead of 4 years, with a 5% (Five Percent) flat rate. Reduction in the maximum period for determining Gain tax to 3 years with 5% (Five Percent) will enhance the Sale/Purchase activity and boost the economy. Real Estate Regulatory Authority RERA The government has passed Real Estate Regulatory Authority

(RERA) bill 2020 from National Assembly and Senate for Capital Territory (ICT) only, but still not implemented. If it is implemented then at least 70 to 80% of issues in the Real Estate Sector will be settled. There is a dire need for the formulation of RIM and its proper implementation just on the lines of other developed countries. Such a step by the government will facilitate removing different hurdles in the Real Estate Sector. Special Relief Package For Real Estate Sector It is suggested that strong measures/ announcements from the Prime Minister

should be made to further boost the prevailing Real Estate Sector. In this regard, Membership fee, Transfer fee, and Possession/Site Plan charges must be reduced at least 50%. The government should legalise the Two Percent (2%) service charges (Commission) on the Sale/purchase transactions from each side and One (1) Month Rent on Lease/ Rental deals from each side by ordering all registration/Mutation/Transferring Authorities and Societies. It is strongly emphasised that keeping these considerations while finalising the Federal Budget 2022-23 for the Real Estate Sector. n

MoIP set to tackle ‘on-money’ problem By Ghulam Abbas

he Senate Standing Committee on Industries and Productions has directed the concerned ministry to take solid measures against the illegal business in the auto industry known as premium or On-Money. The Senate Committee on Industries and Production met on Friday under the chairpersonship of Senator Khalida Ateeb here at the Parliament Lodges to take briefing on the role and functions of the Engineering Development Board with particular references to the aims and objectives of its establishment as delineated on its terms of reference. The committee which met here on Friday was informed by the Engineering Development Board (EDB) on the question of own money on car bookings and purchase raised by Senator Dr. Asif Kirmani that in case of failure in the delivery of car within 60 days of the booking, the purchaser can claim back the own money payment as well as can impose a 3 percent plus Kibor fine. It was further informed that the purchaser has to pay only 20 pc of the total price of the car at the time of booking. On the point of standardisation and quality of production and parts of the auto-mobiles the committee was informed that the accessories of Honda Company are locally manufactured affecting the quality of products. It was further informed that the EDB has no role to play as a regulator or in the standardisation of Production.

The Pakistan Standards & Quality Control Authority (PSQCA) which is an autonomous body subordinate to the Ministry of Science and Technology has the mandate to regulate and enforce quality standards in Pakistan. The committee also showed concern over the procedure through which a car is cleared for road test and also inquired whether or not the procedure is counter checked by another authority other than the company itself. The committee also raised questions from the EDB on the delayed delivery time of the automobiles. During the meeting the officials of EDB while giving briefing to the committee apprised that the EDB was established in 1995. The Federal Cabinet re-constituted the Board of Management (BoM) of EDB in Feb 2019 which has 06 members from Government and 12 Twelve private members representing leading engineering sectors. The committee was briefed on some of the policy and regulatory functions it performs including, secretariat automotive Industry Development and export Committee (AIDEC) under AIDEP 2021-26, secretariat for the Mobile Device Manufacturing Policy and focal point for engineering industry inputs for annual Budget and Competitiveness exercise ( Tariff and Taxes Rationalization ). It was also informed that in addition to a policy formulation role, EDB is the lead organization for implementation of various government regulations for industry facilitation, including determination of price preference to be accorded, under import of engineering Goods (Control) Order, 2001. The EDB officials further apprised the

committee that the importance of the role assigned to EDB can be gauged from the fact that the engineering industry is the largest sector of trade in the world. In 2020, out of total global trade of $17.3 trillion, 56 percent or $9.7 trillion was of engineering goods. It was further informed that Auto Development Policy was successfully concluded in June 2021 in which 21 companies were awarded Greenfield status, whereas under the Mobile device Development Policy approved in June 2020, 31 licenses have been issued by PTA in 2020-21 and major internationals companies like Samsung, Nokia, VIVO OPPO, XIAomi, Tecno , infinix etc have invested and started local manufacturing /assembly In Pakistan. Local assembly of mobiles reached to about 24.66 million during 2021 and commercial imports of CBU units are decreasing rapidly. The committee was also apprised of the Auto Industry Development and Export Policy (AIDEP 2021-26) which gave incentives to the auto sector under Auto Industry Development and Export Policy (AIDEP 2021-26). It was informed that all taxes are removed on locally manufactured cars up to 1000cc (meri gari scheme). The prices of locally manufactured cars have also been brought down (above 1000 cc) through reduction of FED by 2.5 percent on each category of cars /SUVs /LCVs. The meeting was attended by Senators Fida Muhammad, Hidayat Ullah, Dr. Asif Kirmani, Mohammad Abdul Qadir, and Senator Shaheed Khalid Butt. Secretary Ministry of Industries and Production, CEO Engineering Development Board and other senior officers were also in attendance. n

What’s up on the PSX?

The stock market performance By Saad Tanvir

he outgoing week witnessed a bearish tread in the local bourse primarily subject to the announcement on Wednesday of the Consumer Price Index (CPI) for May, declaring consumer prices growth by 13.8% MoM. This drove market sentiment downwards. As per the IMF’s conditions, the government has committed itself to removing subsidies on fuel prices. Amidst the economic turmoil, food prices have witnessed a 17.3% increase while the government has increased fuel prices twices in the past 10 days.. Apart from this, we witnessed a 55-75 BPS increase in yields from the T-bills auction held on Wednesday. This took yields to as high as 15.5% for 12 month securities. This can be used to build expectations regarding the next Monetary Policy Statement by the Statebank where a 50 to 100 basis point increase is anticipated. To further add to the fire, we witnessed a downgrade of Pakistan’s credit outlook by Moody’s Investor Services from ‘stable’ to ‘negative’ in its latest credit assessment on Thursday, June 02,2022. After Moody’s credit rating review on June 20, 2018, this was the first time that Pakistan was subject to such a drastic demotion in its outlook. While the credit rating remained at ‘B3,’ which itself is a junk rating, the downgrade in outlook

STOCK MARKET UPDATES

was primarily pertaining to the new regime’s inability to revive the International Monetary Fund’s bailout package and the nation’s weak institutional capacity. In a statement, Moody’s clarified that the decline in risk outlook was essentially subject to Pakistan’s “is driven by Pakistan’s heightened external vulnerability risk and uncertainty around the sovereign’s ability to secure additional external financing to meet its needs”. Market experts anticipate that this alteration is likely to cause an impact on the banking sector in the upcoming week. Pakistan seeks to unlock external financing from the international market including Saudi, Dubai and China by first unlocking the IMF’s 7th tranche of $1 billion and complying to its conditions formulated in the next budget. Market sentiments with relation to uncertainty, political instability and heightened risk drove the PSX last week. Despite these challenges, the PKR showcased a stark recovery against the greenback and appreciated by 1.25% during the week to close at PKR 197.6/USD. On the flip side, the index moved from 43,040 to 41,315 points going as high as 43,078 points on Tuesday pertaining to the government’s first step towards removal of petrol subsidies. FX reserves have declined to $15.7 Billion as of last week-end, where reserves with SBP stood at $9.7 Billion mainly on account of high external debt servicing and rising import bill. This showcased a decline of $366 million of reserves held by the SBP WoW.

Moreover, heightened global oil prices are putting a major dent on the government’s fiscal space given the fact that the government is still providing a subsidy of Rs9 per liter on petrol, where the prevailing free market price is Rs218 per liter. Economists have recommended that the government let the markets decide on petroleum prices in order to curb the financial budget and enhance Pakistan’s credibility.

Cordoba Logistics and ventures signs agreement with foodpanda to provide motorcycles to its riders

n a brisk filing on the PSX, Cordoba Logistics and Ventures Limited announced on Thursday that it has signed a Memorandum of Understanding with R-Sc Internet Service (Private) Limited (also known as Foodpanda Pakistan), for the provision of motorcycles to Foodpanda’s riders. Foodpanda Pakistan, a subsidiary of Delivery Hero, which is a global leader in food delivery services involved in the delivery of fresh cooked food as well as grocery.

Mari petroleum discovers gas at Bannu west - North Waziristan

ari Petroleum Company Limited (MPCL) notified on Wednesday that it had successfully managed

to discover gas at the Bannu West-1 ST-1 Exploration Well drilled in Bannu West Block, located in North Waziristan, KP. The well, initially spud-in on June 06, 2021, was part of Joint venture between Mari Petroleum Company Limited (MPCL), Oil & Gas Development Company Limited (OGDCL) and Zaver Petroleum Corporation (Pvt.) Limited with 55%, 35% and 10% ownership respectively, where MPCL was the operator. A similar notification was also filed on Thursday by OGDCL.

Silkbank receives an offer to acquire majority stake from Park View Enclave

ark View Enclave (Pvt.) Limited, a company associated with the Vision Group from Lahore has shown interest in acquiring 51% of shareholding in Silkbank Limited for a total sum of upto Rs12 billion. The announcement came in the form of a notification on the PSX on Tuesday. It stated that the Board of Directors of Silkbank formally met on Monday to review the proposal and granted an in-principle approval to its management to pursue the proposal further. The management is required to discuss the matter with Park view enclave further, finalize terms & conditions and the necessary documentations to submit to the Board for a final approval. Other than the board, the transaction is subject to the approval of the shareholders, the SECP, the Competition Commission of Pakistan and the State Bank of Pakistan. The Manager to the Offer, Arif Habib Limited, in a notification filed on the same day presented that Park View Enclave intends to acquire Silkbank either directly or indirectly, through an SPV or a consortium led by itself, through fresh equity injection and acquire additional shares from minority shareholders through public offer.

NetSol Technologies continues its share repurchase

etSol Technologies, the IT giant of Pakistan, as per its annoucnement on May 10, 2022, continues the process of shares repurchase at the ruling market/spot price with the face value of Rs10 each: buyback of 251,000 shares announced on Monday;. buy-back of 151,000 shares announced on Tuesday; buy-back of 143,000 shares announced on Wednesday; and buy-back of 190,000 shares announced on Friday. The announcement said that the buy-back would improve the company’s Earning Per Share (EPS), future dividends and share break-up value.

Maple Leaf Cement continues its shares buy-back streak

aple Leaf Cement Factory Limited, one of the largest cement manufacturers in Pakistan, as per its special resolution dated May 17, 2022, continues the process of shares repurchase with: buy-back of 1.5 million shares announced on Wednesday; and buy-back of 1 million shares announced on Friday.

Board of Treet Corporation recommends working capital loan to First Treet Manufacturing Modaraba

fter a meeting between the Board of Directors of Treet Corporation Limited, the board has recommended a loan of Rs3000 million to one of its associated companies, First Treet Manufacturing Modaraba (FTMM). Upon approval by the high court, the loan shall be transferred to another subsidiary, Treet Battery Limited

Board of Reliance Weaving Mills approves conversion of loans from Fatima Transmission to preference shares

n a notification on Wednesday, Reliance Weaving Mills Limited (RWML) maintained that it had gotten the approval to convert loans and advances from Fatima Transmission Company Limited (FTCL) amounting to Rs73 million into “unlisted, non-voting, non-cumulative, participatory, convertible and redeemable preference shares” at a face value of Rs10 per share.

Fazal Cloth Mills to convert loans from Fatima Transmission Company to preference shares and merge with Impartial Textile Mills

azal Cloth Mills Limited (FCML) announced on Tuesday that it had gotten the approval to convert loans and advances from Fatima Transmission Company Limited (FTCL) amounting to Rs128 million into “unlisted, non-voting, non-cumulative, participatory, convertible and redeemable preference shares” at a face value of Rs10 per share. Alongside this, the company also announced board approval to merge Impartial Textile Mills Limited - a subsidiary - into Fazal Cloth Mills Limited.

Resolution passed to amalgamate G3 technologies into Ghani Chemical Industries

he shareholders of G3 technologies successfully passed a resolution pertaining to the consolidation of G3 technologies Limited, which is a manufacturer of Calcium Carbohydrate, into Ghani Chemical Industries Limited.

Ghani Global Holdings arrangement with bleeding DadaBhoy Sack while Modaraba Al-mali presents revival strategy

s part of DadaBhoy Sack Limited’s (DBSL) revival plan, Ghani Global Holdings Limited (GGHL) or its subsidiaries/ associate may invest in DBSL’s future rights issue of upto 45 million shares or 30% stake. GGHL has made arrangements with DBSL to establish a joint E-commerce/online shopping business either by way of setting up a green-field project within DSBL or to buy the business from collaborating partners. Modaraba Al-Mali (MODAM), a private equity firm, in a notification on Tuesday, announced its arrangement with DBSL for its restructuring and rehabilitation. MODAM notified that it has set a target of December 31, 2022 to complete DBSL’s “Revival Business Plan.”

Engro Powergen Qadirpur confirms PPIB’s recommendations for allowance to operate on RLNG

n a filing on the PSX, Engro Powergen Qadirpur Limited (EPQL) has confirmed that the Project Committee of Private Power & Infrastructure Board (PPIB) has made certain recommendations regarding the 226.5MW power plant of EPQL which may be allowed to operate on commingled RLNG with available permeate gas till 2025, however, with certain conditions. The recommendation is currently under consideration by the Board of Directors of the company.

Balochistan Glass suspends tableware glass operations in Kot Abdul Malik

n accordance to an announcement made by the management of Balochistan Glass Limited, the company has decided to suspend its tableware glass operations located at Kot Abdul Malik (Unit – 3) temporarily, due to rising RLNG pricing alongside numerous other market pricing issues. The company maintain that it has sufficient stock to cater to the demand for this summer season. n

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COVER STORY

By Abdullah Niazi

n the 2nd of June this year, Finance Minister Miftah Ismail directed for expediting the process of importing edible oil from Malaysia and Indonesia to ensure smooth supply of the commodity to the consumers and stabilise its price - which had been hiked by more than Rs 200 a day before. He also announced that appropriate measures be taken to enhance the local production, so that the impact of edible oil imports on foreign exchange reserves could be minimised. The news was buried in the papers and went without much attention. Probably because Miftah Ismail is neither the first finance minister to give such direction nor is his government the first to think that edible oil could be produced locally from scratch saving precious dollars on the import bill. What most might not realise is that Pakistan is dependent on Malaysia and Indonesia for its most basic caloric input. Not only are we the fourth largest importer of palm oil, we also import soybeans and other oilseeds necessary to produce edible oil and the locally essential ‘Vanaspati Ghee.’ Our story begins in the 1930s - when a Dutch company called Dada in association with Lever Brothers in London (the forebearer of today’s Unilever) planned to import cheap vanaspati ghee to the Indian subcontinent. Ghee had long been an ancient staple of the rich in the Indian subcontinent. The cooking substance made of clarified cow milk was used sparingly to make delicacies on festive occasions. Ghee, as a signifier of wealth, has even been codified into the Urdu language, with the idiom ‘paancho ungliyan ghee mein’ entrenched as a mainstream saying. Because most Indians could not afford the product regularly, inventors in Europe had discovered a method to hydrogenate vegetable oil and turn it into a substance that convincingly mimicked the taste and function of ghee. That was the product that Dada and Lever brothers were now bringing to the Indian market. There is a long story as to how Dada and Lever Brothers came to an agreement to launch Vanaspati Ghee under the brand name ‘Dalda’ Ghee — and you can read more about it here. But when the first tins of this product hit the market, they made an impression because of the bright green palm tree logo on yellow that they used. The vegetable oil being used to make Vanaspati Ghee came from the seeds of the palm tree. That is a legacy that we have inherited to this day. In Pakistan, the most commonly used edible oil is Vanaspati Ghee - significantly

more so than cooking oil used by most upper class families in domestic cooking. All of this comes from palm tree oil. And it isn’t just Pakistan. Since the early 20th century, the oilseeds of the palm tree along with Soybeans have dominated global demand, with countries like Indonesia and Malaysia centering a large part of their economies around the production of these oilseeds. In Pakistan, nearly 90% of the import of oilseeds is constituted by palm and soybean oilseeds. In its recently released report for the first quarter of the financial year 2022, the State Bank of Pakistan included a special section on rising palm and soybean imports. According to the report, Pakistan’s palm and soybean-related imports stood at US$ 4 billion in FY21, rising by 47 percent year-on-year, compared to compound average growth of 12.3 percent in the last 20 years. The domestic reliance on soybean and palm has been steeply increasing since the turn of the century. As a result, 86 percent of domestic edible oil consumption in 2020 came from imports up from 77 percent in 2000. The problem, of course, is once again Pakistan’s reliance on imports. For decades, successive five year plans and other policies have tried and failed to make Pakistan self-sufficient on the oilseed front. Some of the reasons have been typical to Pakistan’s crumbling agricultural infrastructure, while others have been climactic and practical. With prices of cooking oil rising by more than Rs 200 overnight, Profit looks at the reasons behind why we are reliant on imported oilseeds and why we can’t grow them domestically and save on our import bill. Why do oilseeds matter? A lot of our focus in this article will be on the oil extracted from palm seeds and soybeans. That is because they are globally the most used and efficient kinds of oilseeds. Essentially, oilseeds is a term used to describe any kind of seeds or plant product that can be compressed to extract and produce oil for cooking - basically the raw product for edible oil. Oilseeds have two purposes. The first is to produce edible oil for cooking purposes. The other is to produce ‘meals’ using the mulch and byproducts of the compression process that are then fed to livestock including poultry and cattle. A big part of why palm and soybean demand has risen all over the world is that it has one of the highest oil-per-hectare yields of different kinds of oilseeds, and also some of the highest protein content - which is ideal both for domestic edible oil production and livestock feed. Pakistan’s reliance on these two oilseeds is not out of global syn, and some of the largest producers of canola and sunflower – which are the third and fourth most consumed

vegetable oils in the world - still rely heavily on palm and soybean. It is natural too. The human population has grown exponentially since the 20th century, and life expectancy has also shot up. At the same time, livestock industries such as poultry have become massive - especially since the proliferation of poultry in the 1980s in the developing world. That means we need the most efficient oilseeds that can give us the required caloric output for a massive human and livestock population. The problem in Pakistan is that we have failed to adapt to the change and grow palm and soybeans locally, relying instead on imports - which has resulted in the whopping $4 billion import bill we currently have for oilseeds. According to the earlier mentioned SBP report, total imports of oilseeds and its products surpassed 7 million metric tons in FY21, 87 percent of which comprised palm and soybean. The SBP report also points towards this, saying “ there has been little focus on palm and soybean in Pakistan. Various five year plans since 1955 have highlighted and proposed the need to focus on soybean and other oilseeds. However, lack of consistent policy has prevented oilseed crops, particularly soybean, from taking off.” “On the other hand, whilst initial surveys and pilots on palm began in the mid90s, palm started featuring in policy documents only after 2005. However, so far policy efforts with long-term focus have not been undertaken for oil palm plantation,” it goes on to read. The reasons behind Pakistan’s reliance on palm and soybean imports is based on a long list of demand-side, supply-side, and local growing capability issues. There is a lot riding on oilseeds, and our failure to become self-sustainable on this front has resulted in having to import a lot of these products.

The demand-side equation

number of industries are dependent on oilseeds. The two products extracted from oilseeds are edible oil and the residual, which is either used directly as food for livestock meal or is otherwise processed into an oilseed-based meal. Oils are the direct source of fats for human consumption, whereas meals are used as feed for poultry, ruminants and other livestock, and aquaculture, which in turn are the primary source of animal protein and other nutrients necessary in the human diet - making oilseeds a very basic building block of humanity’s caloric intake. In addition, the oil from oilseeds is used by both food and non-food industries such as biscuits, tea whitener, soap, cosmetics, pharmaceuticals, paint, fertiliser and biodiesel.

This makes oilseeds vital. According to the SBP report, global consumption of oilseeds has increased manifold since the 1980s, with more than 600 million tons consumed in 2019 (Figure S1.8). Although Pakistan’s share in global oilseed consumption is a marginal 1.1 percent, it follows the same growth trend, with domestic consumption up 3.5 times over 1981. The increase is driven by a rise in demand for both edible oils and oilseed meals. On the cooking oil end of the equation, Pakistan in particular is a country with a high-dependency, even compared to other countries with similar dietary preferences like Sri Lanka and India. Just take a look at Dalda, one of the top brands selling cooking oil in the country. Their cooking oil is made of a blend of canola, soybean, and sunflower seed oil with no mention of palm oil. However, the use of cooking oil has mostly been seen in higher income brackets in Pakistan. There is a clear indication that as people climb social and financial brackets, their preferences change towards lighter oils like Canola and Olive oil because of the perceived health benefits but for the most part it is palm and soybean that is doing the heavy lifting in the country. Despite consumer preferences tilting towards cooking oil in higher income groups, vegetable ghee consumption is higher than that of cooking oil at household level in Pakistan. Edible oil consumption in Pakistan has increased significantly over the last few decades: from 0.7 to 4.7 million tonnes between 1981 and 2020. The main demand drivers are rising population, dietary preferences and increase in per capita income. According to the recent SBP report: Pakistan’s per capita edible oil consumption is already higher compared to economies with similar income levels. In addition, increasing income levels may also translate in increased per capita consumption of edible oil, as will population growth. According to the UN’s

A consistent string of failures The SBP report gives a brief history of the challenges that oilseed production has faced in the country. The consistent lack of policy focus on oilseed stems from institutional challenges. The first institution tasked with the development of oilseed crops was Pakistan Edible Oil Corporation (PEOC); which was setup in 1977 but dissolved after two years of spadework. It was replaced by the Seed Division established in Ghee Corporation of Pakistan. The division was abolished in 1993. In 1994, Pakistan Oilseed Development Board (PODB) was set up with a comprehensive mandate to increase oilseed production. After a series of suspension, closure, reduction in mandate56, and reactivation since 1994, the PODB was restored to its previous status in June 2021,under the new name of Pakistan Oilseed Department. However, since the 18th Amendment, little support exists to provinces from POD whereas provinces do not have oilseed specific institutions

World Population Prospect 2019, at constant-fertility, the country’s population in 2025 is set to reach 245 million, and 328 million by 2040. 20 This implies that demand for edible oil will continue to increase noticeably. According to estimates by Pakistan Oilseed Department, total demand for edible oil in the country is conservatively expected to grow to 5.9 million tonnes in 2025-26, from 4.7 million tons in FY21 But it is not simply edible oil that is driving this demand. Palm and soy are also preferred because of their ability to make livestock feed. In the three decades since 1990, the consumption of oilseed meals as feed for livestock has tripled in the country - a big reason for which is the growth of the poultry industry. This is particularly true in the case of the soybean. Since it is rich in nutrition, its meals offer better digestibility, quality mix of amino acids and have the highest protein content (around 44-50 percent) compared to all other oilseed meals. These qualities make it a better feed ingredient for chicken in comparison to cottonseed - which was the traditional oilseed used in Pakistan. According to the Pakistan Poultry Association (PPA) estimates for 2015-16,

approximately 9.5 million tons of poultry feed was produced, nearly a third of which was oilseed meals. This means around 2 - 2.8 million tonnes of oilseed meals were used in Pakistan’s poultry industry. As demand for poultry increases, no of chickens raised also goes up and so does demand for soy seeds as feed. In addition to poultry, growth in per capita beef consumption and increase in population of other livestock animals30 with a CAGR of 2.6 percent for FY02-21 period31, are also contributors to the increased demand for oilseed meal in the country

The supply-side equation

uccessive governments since 1955 have been trying different approaches to make these oilseeds more easily and locally available. Cheaper and locally produced oilseeds would mean better nutrition for both humans and livestock as well as be a $4 billion relief on the import bill. None of it seems to have worked. The National Commission on Agriculture in 1988 noted that cultivation of oilseed crops in the country had stagnated in the first four decades since 1947, in sharp contrast to the rest of the agriculture sector. The situation has not improved since then. Production of both traditional and non-traditional oilseeds crops. For instance, in 1989, the government started a 7-year National Oilseed Development Project for the promotion of oilseeds. However, the project faced bottlenecks, such as inadequate seed supply and procurement problems. Essentially, it has been Pakistan’s weak agricultural infrastructure that has not allowed this vital crop to take hold. The fundamental reason has been the absence of a consistent oilseed policy. There is

COVER STORY

limited research on the subject, and the little that has been done has never reasonably been applied to try and see practically whether or not it works or not. All of this is made worse because of general problems in Pakistan’s agriculture - deficiencies in marketing and procurement challenges leading to weak linkages in the value chain; and inefficient oil extraction in villages and small towns. Take simply the example of support prices - there are none for oilseeds in Pakistan despite successive governments feeling it is necessary to try and solve the issue through domestic production. It means farmers are not incentivized to grow oilseeds, and at the other end middlemen have been found to exploit oilseed farmers, such as sunflower seed producers.

Can we do it locally?

here are two parts to answer this question. The first question is whether or not local varieties of oilseeds could effectively solve our oilseed requirement. The second requires us to figure out whether or not we can grow palm and soybeans locally in enough quantities to become self-sufficient or at least quasi self-sufficient. Can local varieties cut it: The first problem we have with that is that our traditional oilseed varieties are not specifically bred or farmed for oilseed purpos-

Rising cooking oil prices The government on Tuesday shocked consumers by pushing up ghee and cooking oil rates by an unprecedented Rs208 and Rs213 to an all-time high of Rs555 per kg and Rs605 per litre, respectively, making it more expensive than in the retail sector. The maximum rate of ghee and cooking of renowned brands in the retail markets still hovers between Rs540-560 per kg/litre. Currently 160,000 tonnes of palm oil stocks are available at the twin ports of Karachi which are sufficient for three weeks of consumption. Despite the lifting of an export ban by Indonesia on palm oil on May 23, not a single loaded vessel had been on the high seas or at Indonesia port for shipments to Pakistan. es. Take, for example, cotton seeds - which are oil seeds and have historically been used both as edible oil and to feed meals to livestock but are cultivated for their fibres more than anything else. We grow cotton seeds for good reason - the fibres are precious. However, cottonseed is the biggest contributor to domestic production of edible oil, despite having an oil extraction rate of only 16 percent. Even on that front there has been very little good news. Cotton cultivation has been on a secular decline, the contribution of cottonseed oil to total domestic edible oil consumption has fallen to 8.7 percent in 2020 from 17.2 percent 20 years ago. Similarly, its share in meals produced from domestic oilseed crops dropped to 79 percent in 2020 from 88 percent in 2000, as per USDA data.

There are other locally produced oilseeds in Pakistan as well. Canola, groundnut, sesame, castor and linseed, are the major crops used in edible oil and oilseed meal production. Despite having higher oil extraction rates of 42 percent and meal extraction rate of 58 percent, Canola’s area under cultivation had gradually declined between 1967 and 2016. In recent years, Canola is being encouraged in Punjab through a cash subsidy package introduced in FY18,44 as a result of which acreage and production more than doubled between FY18 and FY19.45 However, despite these recent positive developments in canola, the area under cultivation of these crops is still small, and edible oil from combined domestic production of canola met only 4 percent of domestic edible oil demand in 2020, as per USDA data. Peanuts and groundnuts are even smaller acreage than canola and cotton, and on top of that are not usually used as oilseeds. Cotton included, during the last 15 years, the local production of edible oil has registered negative average annual growth of 1.2 percent, while the demand per capita has increased by 2.3 percent, leading to increasing reliance on imports for both edible oil and meals. While encouraging local varieties is clearly an area that needs continued attention, in the short-term it is a deadend. The next question, then, is whether or not we can grow the palm and soybean oilseeds that we have gotten used to locally. Can we grow palm and soybean oilseeds here? It is very clear that Pakistan’s growing imports of palm oil and soybean seeds is in line with the global consumption pattern where reliance on these two commodities has grown manifold to produce edible oil and oilseed meal purposes. However, so far policy focus on both commodities is lacking. Attempts have been made to do this but have summarily failed. In 1994, a survey was conducted by the National Agriculture Research Council (NARC) which surveyed 3.86 million hectares in Sindh, of which most were coastal districts for feasibility to grow

TEXTILES

soybeans. The survey checked humidity, soil conditions, and existing land usage as perimeters and decided that around 1.65 million hectares were considered suitable growth in varying degrees. However, the project faced the typical Pakistani issues. After initial years of promising growth, the pilot project faced various types of management issues and operational bottlenecks. In its assessment of the project, the SBP in its report writes “in some cases, the plantations were not maintained or were otherwise neglected; in other areas, seeds were not managed properly at pre-nursery stage. There were also incidents of inadequate fertiliser usage, inefficient water distribution, and attacks by rats. On the whole, the project was not closely monitored, partly because of institutional challenges such as those discussed in the previous section. As a result of these farm management issues, the pilot project was not

successful in testing whether or not the theoretical potential was possible.” There has been a very clear lack of will on this front. Soybeans were included in a five year plan in 1955 but did not receive a support price until as late as 1978, which was also discontinued after 1998. The crop’s progress remained weak, with highest ever production being limited to only 8,200 metric tons. Following the increase in demand for soybean meal by the feed industry, the pace of research has recently started to pick up, where the biggest crop-specific challenge is the availability of sowing seeds suitable in Pakistan’s climatic conditions. Soybeans usually require mild climactic conditions. In light of this, a heat tolerant variety called Faisal Soybean has been developed and piloted by Oil Research Institute (ORI) Faisalabad in 2018-19. The results were encouraging in north and south but not in east and west punjab.

This implies that in the medium term, at conservative estimates of 1 tonne per acre grown at only 0.5 million acres out of total suitable areas identified, Pakistan can potentially grow 0.5 million tonnes, which is 20 percent of the country’s FY21’s soybean import quantity. However, to realise this potential, the overarching challenges to oilseed crops discussed in previous sections would need to be addressed. On the palm seed front, compared to high yielding oil palm regions in Malaysia and Indonesia, which receive an average rainfall of 2,000 mm on an annual basis, coastal areas in Pakistan receive 32.1 mm per year on average. This is a vast difference, but it has been suggested that acre water requirement of oil palm is lower than that of sugarcane and banana plantations currently grown in Sindh’s coastal belt. Because of this, the SCDA suggests relying on irrigated water to explore the potential of oil palm plantation. Irrigated water supply is also being harnessed to expand oil palm plantations in India. At the end of the day, however, the most important factor will be whether or not there is enough political and bureaucratic will to focus on this issue. Up until now, efforts to completely localise oilseed production have been half-hearted and imperilled by a lack of attention. As Pakistan heads into a time of trying to save anything and everything from any possible source, this is one area that could very well prove a model example if handled properly. n All graphs have been taken from the SBP’s report for the first quarter of the financial year 2021-22.

COVER STORY

OPINION

Uzair Younus

country is committed to maintaining macroeconomic stability. A key driver of economic stability is policy stability, and the data analyzed by Dr. Nooruddin shows that “states in which credible constraints against policy change exist experience lower levels of growth-rate volatility.” So far, the findings seem intuitive. But it is when the author analyzes growth rate volatility across types of governments around the here is a generally held belief in Pakistan, especially world that things get fascinating. According to the research conducted among many within and around the corridors of powby Dr. Nooruddin, “minority and coalition governments in parliamentary er, that the country needs a strong and centralized democracies emerge as the most consistent dampener of volatility.” He government in Islamabad. This, they argue, is a necesalso finds that “the most robust determinant of economic growth is the sity to push through the types of economic reforms presence of coalition or minority parliamentary governments.” In short, the country needs to get out of a decades-long decline. the author’s analysis shows that coalition governments in democracies From privatization of leaky state-owned enterprises to the broadhave a better track record of stabilizing the economy, delivering reforms, ening of the tax net, the argument is that tough decisions require a incentivizing investment, and generating sustainable economic growth. strong leader with a broad mandate where the government cannot be This does not make intuitive sense. After all, coalition or minority held hostage. Research, however, suggests that coalition governments governments are inherently unstable, where reaching consensus on poland a system where power is distributed may be better at delivering icies is a painful and arduous process. But according to Dr. Nooruddin, sustainable growth and reforms. this is exactly why coalition governments deliver stable and sustainDr. Irfan Nooruddin’s book Coalition Politics and Economic able growth with reduced policy volatility. His argument is that while Development makes a compelling argument for coalition governachieving consensus in a coalition government may be a slow and painsments and their ability to deliver growth and reforms. He argues that taking process, reforms pushed through such a process are less likely to “governments’ inability to commit credibly to present and future be reversed by successors who were left out of the process at the outset. policies strongly contributes to growth-rate volatility.” This claim An example of the longevity of such reforms is visible across the resonates with those who follow Pakistan’s economy, where constant border in India, where weak coalition governments set about reforming political and policy volatility undermines confidence in the economy the Indian economy decades ago. These reforms were successful for two and a boom-bust cycle is the norm, not the exception. key reasons: a “widespread recognition” among India’s political elites This volatility, Dr. Nooruddin argues, breeds macroeconomic that economic liberalization was the only path forward and “the stainstability, discouraging investment in the economy, particularly intus-quo-preserving nature of coalition politics.” This has been evident in vestment with a longer time horizon. The higher risk associated with recent years as well, where the Modi-led NDA government in India has investing in such an economy requires higher returns, “which means continued the slow process of liberalizing India’s economy, even when that higher volatility probably deters investments in projects that such liberalization causes disruption that affects the core voter base of might have occurred at lower levels of volatility, something developthe ruling party – the country’s slow embrace of organized retail and the ing countries cannot afford.” successful rollout of the GST reforms under the NDA, despite significant Incentivizing investment by reducing actual and perceived pushback from trader groups who are a key voter base of the BJP, is a risks should therefore be of utmost priority for governments. But case in point. how can this be achieved? Dr. Nooruddin argues that an effective But while these findings push back against the view that a strong, way to do so is by credibly committing to stable policies that reduce centralized government can change the trajectory of Pakistan’s ailing uncertainty and signal to investors, domestic and foreign, that the economy, they do not answer the question of how consensus can be reached, especially in today’s polarized environment. The ruling PMLN’s leaders have long argued for a “charter of the economy,” and many PTI supporters who closely follow the economy agree that reforms are the only path forward. But the current political temperature is running high, meaning that political leaders are simply incapable of reaching The writer is Director of the type of consensus India reached years ago. the Pakistan Initiative Add to this the fact that Pakistan’s political system is inherently exclusionary, meaning that broad at the Atlantic Council, a swathes of underprivileged groups remain shut out of the political system. Which means that the very Washington D.C.-based beneficiaries of the status quo economy, one that is delivering for the few at the expense of the many, must think tank, and host of the be the ones who agree on and push reforms that reduce their own ability to extract rents. Why should they podcast Pakistonomy. He pursue this path when Pakistan’s decades-long secular decline has enriched them? This is a question worth tweets @uzairyounus. pondering over and one that requires more research and debate. But based on Dr. Nooruddin’s research, weak coalition governments may not be so bad for Pakistan’s economy after all.

Can coalitions push through reforms?

COMMENT

OPINION

Ammar H. Khan

A cruel summer ahead

There are lessons that we can take from the past

wo successive governments after months of inaction, and more than PKR 350 billion in subsidies to encourage demand in a constrained supply environment have finally taken policy decisions to cut back on subsidies, and eventually move pricing of petrol, and diesel at market parity. Any further delay could have led to a situation where we may not have enough reserves to even buy fuel resulting in shortages, supply chain disruptions, and potentially civil unrest. The decision to increase the price of petrol by 40 percent within a span of a few weeks is going to rip through inflation, through both direct, and second-round effects as producers reprice goods, and consumers adjust their consumption basket. The adjustment will be painful, but quick decisive action would ensure that the pain can be managed, rather than be catastrophic in case of inaction. Latest numbers for the Sensitive Price Index demonstrate that the basket of essential goods has increased by 2 percent on a week-on-week basis, and increased by 20 percent on a year-on-year basis. The same will now become a recurring trend, as the price increases are cascaded through the value chain. In the first round, the direct impact of increase in fuel prices would be quickly repriced, as transport, logistics, and energy services are repriced. Once direct repricing is done, producers will reprice goods as overall cost of production would increase due to higher energy costs. Repricing may not be a direct pass-through, some producers may absorb certain costs, while others may resort to shrinking packages and hide direct inflation under the guise of shrinkflation, and so on. The second-round effects of inflation would take six to eight months to materialize. Consumers would adjust their consumption basket, as wages adjust with a lag. If the recent past provides some guidance then we may see elevated inflation levels for nine to twelve months till a high base effect kicks in. Pakistan faced a similar crisis in 2008, preceding which petrol

The writer is an independent macroeconomist and energy analyst.

COMMENT

prices were fixed at an arbitrary number for the longest time, seeding the multi-headed hydra known as circular debt, which continues to be a considerably bigger problem fourteen years later. As the global financial crisis kicked in, and oil prices increased to more than US$ 150 per barrel, it was fiscally not sustainable to maintain petrol prices at an arbitrary level, which led to an increase in prices at the pump, depreciation of the PKR, and a painful adjustment process. The monthly inflation for May-08 was 19.2 percent on a year-on-year basis, which kept on increasing, reaching a peak of 25 percent in Oct-08, till it started tapering off due to high base effect, while reaching single-digit inflation by Oct-09. The adjustment process was essentially eighteen months long as the high-growth consumption driven era of the mid 2000s came to an end.

In present circumstances, where commodity prices have been on a tear for the last eighteen months globally, and are not showing any signs of cooling off, the worst may be yet to come and energy continues to be repriced. During the next three quarters, we may see inflation exceeding the 20 percent mark for a few months, before tapering off by the second quarter of 2023. Monetary tightening may continue, although we may reach peak rates soon unless policy makers continue with an expansionary fiscal policy fueled by debt, which would lead to expansion in the monetary base, and more spiraling inflation. The last time inflation exceeded 20 percent, it provided an opportunity to re-evaluate the country’s dependence on imported sources of energy. However, staying true to the national ethos of never learning from experiences, we did not decrease reliance on imported fuel, but increased it further. The real estate sprawl that followed 2008 accompanied by an increasing reliance on both imported oil and gas without giving any due consideration to creating an integrated public transit infrastructure, and an efficient logistics network – our consumption of imported energy increased multifold, and so did the energy intensity of our GDP. The crisis that is about to unfold will provide an opportunity to rethink transport, and to rethink the integrated energy mix. The crisis is an opportunity to finally reshape the way energy is consumed in the country. One hopes that Groundhog Day will not be repeated, and we can see actual policy changes through political consensus, rather than using band-aids to move from one crisis to another.

The 650bn rupee question:

will monetary tightening bridge the divergence between monetary and fiscal policy? When the government is being fiscally frivolous, is the interest rate the only way to make them stop? By Ariba Shahid

arlier this week, the State Bank of Pakistan announced a 150 bps policy rate hike. Conventional wisdom would say that the logic behind a policy rate hike is inflation. Higher interest rates make loans more expensive for both businesses and consumers, and everyone ends up spending more on interest payments But more even than getting the government to increase interest payments, the goal of the SBP in increasing the policy rate seems to be dissuading the government from borrowing more. In essence, the move is a babysitting measure meant to discourage the government from being fiscally irresponsible. The official explanation given behind the hike was that “this action, together with much needed fiscal consolidation, should help moderate demand to a more sustainable

pace while keeping inflation expectations anchored and containing risks to external stability.” The SBP’s call for “timely action” to “restore fiscal prudence, while providing adequate and targeted social protection to the most vulnerable” also indicates that a key element of the statement released by the central bank is the divergence between the monetary and fiscal policy. This is the first time in the recent few years where the SBP is calling for fiscal prudence. This hints at how things may have gotten out of hand. The MPS pointed towards the pressures added by an expansionary fiscal policy. The SBP said that the fiscal stance in FY22 is now expected to be expansionary instead of budgeted consolidation. The impact of this divergence is that the SBP is left to do the brunt work and make up for the gap left by the government which has left an impact on economic indicators and fundamentals.

The Rs 650bn misalignment

he IMF projected expenditure to be at $ 11,731 bn for FY22, however, the estimated value for the year turns out to be $12,381. As per IMF estimates, the government of Pakistan has overstepped in public spending by at least $650bn than what was previously projected. This includes current expenditure, interest expenditure, subsidies expenditure, and development expenditure and net lending. “External pressures remain elevated and the inflation outlook has deteriorated due to both home-grown and international factors. Domestically, an expansionary fiscal stance this year, exacerbated by the recent energy subsidy package, has fueled demand and lingering policy uncertainty has compounded pressures on the exchange rate,” read the statement.

“The central bank’s statement conveys, in so many words, that the real problem lies on the fiscal side. Without the economic managers in power agreeing to cut spending, the central bank will always keep playing catchup [with bond market players that are demanding higher yields, and based on real interest rates],” says Uzair Younus, Director of the Pakistan Initiative at the Atlantic Council. “However, the hike once again indicates that the central bank is behind the curve and is hesitant to impose severe costs on the government for abandoning fiscal prudence,” adds Younus The statement also shows that the SBP is of the opinion that fiscal prudence is very much possible in the present given it was followed even during the peak of the pandemic. Highlighting the importance of fiscal prudence, the SBP mentions, “such prudence enabled Pakistan’s public debt to decline from 75 percent of GDP in FY19 to 71 percent in 2021 despite the Covid shock, in sharp contrast to the average increase of around 10 percent of GDP across emerging markets over the same period.”

Does the government have this kind of money?

he simple answer to this question is no, it does not. Flashback to last year’s budget when the government was overenthusiastic about revenues, and as a result pushed out a business friendly budget. The budget showed the government was in no mood to cut back on fiscal expenditure. It seemed like the days of austerity were over. However, what was interesting is that the government was relying heavily on the petroleum development levy as a form of revenue. The Government anticipated tax revenue to come in at Rs 5829 billion growing 17.45%. Whereas, non tax revenue was expected to grow 29.19% from Rs 1610bn to Rs 2080. This was strange considering the global commodity cycle. The world was reopening and the drastic increase in demand for fuel resulted in fuel prices already heading up. But global prices refused to cooperate with the government’s projections. As they spiraled out of control, the room to impose fresh taxes on fuels diminished proportionately. Fuel prices have just been increased by the incumbent government by 20% or Rs 30. However, there still remains a subsidy on fuel prices. There will be considerable time before the government is able to earn off fuel, a commodity that was once seen as a source of revenue for the government.

Between February when the subsidy was first introduced by the Imran administration up until June when the subsidy was slashed by the incumbent Sharif regime, the federal government copped a blow of nearly Rs 300 billion, As per data by the SBP, the petroleum levy revenue went down 90% for the period of July 2021 to September 2020 compared to the same period last year. As per the budget, expenditure on subsidies was projected at Rs 682 billion, which was 3.26 times what the subsidy expenditure was in FY21, during a pandemic.

Do policy rate hikes make sense?

n essence at this point in time, the monetary policy is in effect a tool to deter the government from borrowing more considering the high rates. This is because the inflation Pakistan is now witnessing is primarily cost push inflation as opposed to money supply driven demand pull inflation. Cost-push inflation occurs when the cost of business increases in the form of higher energy prices, higher raw material prices and rising wages. Due to the rising costs, the aggregate supply retreats and again many buyers end up chasing fewer goods. This again leads to a rise in prices. This form of inflation is difficult to reverse as it creates an inflationary spiral. Furthermore, this inflation will only subside with a rise in aggregate supply in the economy, which cannot be done overnight therefore, reliance on imports remains. Of course, governments often tend at moments like this to borrow from the central bank, particularly in developing countries. The borrowing only makes matters worse, and if the central bank does not dish out the cash the government can go to commercial banks. This results in a crowding out of finances in the private sector. To stop the government from doing this, a tool in the hand of the central bank is hiking policy rates to make it more expensive for the government to borrow. Restricting the government from borrowing is thus an anti-inflationary measure. The SBP focuses on achieving monetary stability by controlling inflation close to its annual and medium-term targets set by the government. This means it is in the mandate of the SBP to control inflation, however, the tool it predominantly has is the tool to control money supply. When policy rates are hiked up, the supply of money decreases. This is because people find it more rewarding to park their money into savings as the saving rate is high-

er; or they do not take out loans to spend due to the high cost of borrowing. As a result, the supply of money is curtailed. This is usually done when there is demand pull inflation where too few goods are chased by lots of money driving prices up. When a contractionary monetary policy is put to use, inflation is expected to go down, unemployment and output are said to decrease too. This is often done to prevent the economy from overheating and to avoid the bust part of the boom-bust cycle. Essentially, when there is little demand-pull inflation because most of the inflation is cost push driven, the hiking of policy rates makes little impact. It is said that if policy rates are hiked exorbitantly, especially once they attain real interest rate levels, i.e. higher than actual inflation; they tend to be counterproductive and in some cases bring around a wave of inflation. A different school of thought is based on the cost-push effects of interest rates which suggest raising interest rates to a very high level is often reflected in a higher price level. This is called the Gibson Paradox, a concept dating back to 1923. It uses observation to explain that real interest rates and changes in the general price level are positively correlated at times. The term was first used by John Maynard Keynes. Reliance on borrowing working capital caused higher interest rates to translate into a higher cost of working capital and a rise in inflation. In the case that firms decide not to borrow working capital from banks, the opportunity cost of their own funds rise with market interest rates, which also impact the price level. In the case of Pakistan, we haven’t entered real interest rate territory yet despite more than 600bps worth of hiking in less than a year. Until real interest rates aren’t achieved, the cost of borrowing is still cheap while the cost of saving is significantly less rewarding, therefore the money supply is not truly contained, and the SBP needs to do more for inflation.

OMOs cancelling out monetary policy?

f the SBP manages to deter the government from borrowing large amounts to foot the bill for its spending patterns, the SBP is intentionally or unintentionally trying to bring a convergence in policy. It is also a question whether the government will actually be put off by the high cost of borrowing, because they could just borrow more at a later date. This will further push up inflation because of the fiscal expansionary policy and the cost associated with interest rates rising.

MONETARY POLICY

This enforcing of fiscal austerity is beyond the SBPs targets, however when the government is being fiscally frivolous for political clout, it looks like the autonomous and independent actors such as the SBP have to pull it together. However, there is a conflict here. Despite the SBP indirectly raising the cost of borrowing for the government, it is also in a way subsidizing it through open market operations (OMO). OMOs are important because not only do they help implement the monetary policy, but also help central banks to manage the short term interest rate in line with the objectives of its stated Monetary Policy stance. OMOs help central banks control the total money supply by expanding when conducting an OMO injection, and contracting when mopping up liquidity. In the current scenario, the SBP is indirectly financing the government through these frequent OMOs. Profit has previously written an explainer for what OMOs are. However, to simplify it in a few lines, Younus says, “Think of OMOs as your mamu wanting to give money to your mom but he can’t. Instead, he gives you Rs 5000 and tells you to give Rs 4000 to your mom. He lets you keep the Rs 1000.” In this analogy, you are the commercial bank, your mom is the government, and your mamu is the central bank. When the government purchases from the interbank, it is affecting the money supply. This reduces the availability of those t-bills or bonds, as a result, the price of the remaining bonds go up. When bond prices rise, the yields fall. This brings interest rates down in the overall economy. There was initially a ban on government borrowing from the SBP under the IMF programme till September 2022; however following the SBP Act, the government has now given up and agreed to permanently close the door to this option through legislation. “The bank shall not extend any direct credit to or guarantee any obligations of the government, or any government-owned entity or any other public entity”, states the clause. In case you’re wondering why can’t the government just borrow infinite amounts from the central bank itself – because it increases the money supply rapidly which drives up inflation. Borrowing has to be done against some collateral. As per the Act Section 409 C, the SBP shall not purchase securities issued by the government or any government-owned entity or any other public entity in the primary market. The Central Bank may purchase such securities in the secondary market.

Simply put, the government is in a crunch. The government has been increasingly demanding domestic commercial financing, especially in the absence of foreign inflows. The larger the demand, the more power for banks. Banks, however, have been driving up yields considering the inflationary environment; despite a central bank that is showing caution at hiking policy rates. In order to meet its expenses, the government continues to borrow from commercial banks because it cannot borrow from the SBP directly. During the January 24 Monetary Policy Committee Press conference, Profit asked governor SBP, Dr Reza Baqir about the 63 day OMO injections and the concept of cheap money for the government. The governor responded saying that the SBP in accordance with the SBP Act, while not being able to lend directly to the government, can step in and inject liquidity when needed. What this means is the SBP, while not being able to lend to the government directly, can help it get credit at a better yield through OMO injections. This helps drive up profits for banks because they get a decent spread, and helps the government. What this also means is that on hand the policy rate is being hiked to control money supply for businesses, individuals, and the government. On the other hand, the OMOs are cancelling out the effect of the policy rate hike on government borrowing. This means, the impact of the policy rate hike is essentially just on businesses and individuals, not

really the government which already had the liberty to borrow more at a later time to pay off existing debt.

Is everything just cancelling each other out?

o the OMOs are cancelling the policy rate hikes out. The expansionary fiscal policy is canceling the policy rate hikes too. A country should not have both an expansionary fiscal policy with a contractionary monetary policy; nor should the government have a contractionary monetary policy whilst an expansionary government lending policy through OMOs. All this is counterproductive in attaining the one thing they’re out targeting, inflation. What all this suggests is that Pakistan needs clear directed approach in its policies, especially for long term decisions. This confused policy making will not only balloon the Rs 650 bn, but makes lives difficult for businesses and individuals, the people the institutions should be set out to help. In all this, one hopes that the IMF is able to knock sense back in and set the government on track for fiscal austerity. Once that is put into place, the SBP will not need to step in with OMOs to provide cheap credit. Only then will the monetary policy make sense and have an impact. Until then, all we can do is wait and hope things dont get out of control. n

MONETARY POLICY

ezBike: Revolutionizing Mobility or Just another startup?

The company aims to develop the EV ecosystem in the country but is it that EZ? By Ahtasam Ahmad & Taimoor Hassan

he lack of quality mobility infrastructure in Pakistan is an inescapable fact. The government and the private sector have come up with solutions to this problem in the shape of initiatives like Metro Bus service and private ride hailing companies like Careem, Uber and Bykea. However, these solutions are insufficient to improve the deplorable state of the country’s transportation network. As per the World Bank, “Insufficient transport infrastructure results in congestion, delay delivery time, fuel waste, pollution and accidents which build inefficiencies in the economy and costs the economy 4 to 6 percent of GDP each year.” An Islamabad based mobility startup ezBike plans to alleviate Pakistan’s mobility vows by providing electric scooters as an alternative transport solution. The company plans to commence production and sales of electric scooters following a million dollar raise in a

pre-seed round. ezBike was launched in October 2020 as Pakistan’s first electric scooter sharing service by Mohammad Hadi, a former investment banker, and Ali Moeen, a software executive. Since its inception, the startup claims it has boarded over 100,000 customers who can book an ezBike parked around the city of Islamabad. The recently raised capital would be used to build a comprehensive ecosystem of its own for electric two-wheelers, including an electric scooter assembly facility, and low-cost lithium-ion battery production which will lower the cost of electric scooters for customers. The business idea might seem attractive but are the fundamentals present for this startup to grow in a sustainable way?

The concept

he first service that the company launched was a last mile solution in form of shared electric scooters that were scattered across a few sectors in Islamabad and the USP for this service was

being driverless which meant that customers would drive the scooters themselves and as the company operates a dockless model, they can park anywhere and leave. While talking to Profit, Ali Moeen, explained, “We chose to operate under a dockless model because it enables better mobility for the customer. If we see that a bike is somewhere that is not safe or chances of it getting booked from there are low our repositioning team goes there and relocates the bike to a safe and high demand area.” However, the current model does raise some eyebrows regarding customer safety, theft prevention and licensing for operating these vehicles on the road. Regarding the customer safety and licensing requirement, Muhammad Hadi, explained to Profit, “According the Bye laws of Motor vehicle Ordinance 1965, license is needed to operate a vehicle that can travel at speeds in excess of 40 kph or has a 50cc engine. In our case the top speed of the existing fleet is 35 kph and electric scooters don’t have cc engines.” “The bikes have been tested and mod-

ified for a safe driving experience, however, we are arranging insurance for our customers to cover any losses in case of an accident.” Hadi further added. Responding to Profit’s query regarding theft and loss prevention, Ali Moeen, stated, “We have multiple security layers in place to prevent such incidents. Additionally we do have our fleet insured.” However, the startup is not looking at the ride sharing business as its primary source of revenue rather it aims to expand into the Business to Business sales (B2B) of electric scooters starting with the delivery service businesses including the likes of Airlift and Foodpanda.

The model

he mobility sector startups face a lot of criticism for their unsustainable unit economics. Most of them make a loss on each ride and endup burning a substantial amount of investor money with very little to show for it. However, in the case of ezBike, as expected, the unit economics are on the positive side. The reason for that is low overheads and fuel cost savings. In order to better understand how this works let’s take a look at an example of an average ride on these bikes. If one of these bikes is used for a trip from the F-8 sector in Islamabad to the F-10/11 sector it would take around 14 mins to complete the ride given the limited speed of the vehicles . This would cost the users around Rs 90 as the per minute charge for a ride is Rs. 6 and activation charge is Rs 5. For the said ride, the company will incur a cost of around Rs. 8-9 in form of depletion of battery charging while the fixed overheads include insurance at around 3%-5% for the cost of the vehicle as well as tracker charges, internet charges and salaries of comprising mainly of unskilled workers deployed for bike repositioning and battery swapping (will explain this later). Ali Moeen, while explaining the business model stated, “ We recently reduced 30% cost of repositioning staff which is our main overhead by incorporating tech. As for the charging cost, right now it is less than a rupee per kilometer. Other overheads like insurance are negligible for us.” The planned pivot to the B2B sector would commence with ezBike establishing its own assembly for which the founders are hopeful to get a license by the end of June. In the current bike sharing model, ezBike is already importing bikes in completely knocked down (CKD) unit form and assembles it locally. This saves a substantial amount as CKD incurs around 20% taxes and duties compared to 117% for importing Completely Built Units. The startup plans to indigenize the

assembly and manufacturing process as much as they can for which they have certain JVs in process that they refrained from discussing about. However, the market they are targeting is delivery fleets that include foodpanda and Airlift riders. Co-founder Muhammad Hadi told profit that the vehicles sold to the B2B market would have functionality comparable to the existing CD 70s used by the riders. He also mentioned that the cost of the new Bikes would be around 70%-80% of popular CD-70 models. This would suggest that the Bike would cost around 75,000 and given that the battery prices are approximately 40%-50% of the total cost, the complete product might cost around Rs150,000. The value proposition for the delivery fleets is that they would be able to save around 50% of their fuel cost. Further, ezBike is also working on a financing arrangement with a leading bank to enable the riders to buy the vehicle on installments.“Once the rider pays the down payment, his fuel savings would be enough to cover the installments which will enable him to own the bike in 12 months”, stated Ali. The battery cost on the other hand is not included because the company plans to set up swapping stations, as mentioned earlier. Basically, battery swapping is a way to get around the problem of charging bikes. As in their Bike sharing model, there would be surplus batteries compared to scooters on the road that will enable a leasing mechanism for B2B market. This, as per the founders, would be done through establishing battery swapping stations across the cities where ezBikes are provided to the riders. The startup aims to set up a facility with capacity of producing around 20,000 bikes annually. While they also intend on launching a swapping system with initially setting up between 10-15 stations. Regarding the cost of building a swapping station, Muhamamd Hadi stated,

“It depends on the size / number of batteries and speed of chargers. We are exploring partnerships with engineering companies on the installation and maintenance of the stations” Muhammad Hadid, co-founder ezBike “It depends on the size / number of batteries and speed of chargers. We are exploring partnerships with engineering companies on the installation and maintenance of the stations.” However, this makes it a very capital intensive business model, but as per Ali Moeen, “Going forward our Bike fleet will be financed (Bank Lease) so we technically take the bike assets off our balance sheet and this will help us to maintain a healthy liquidity”

Analysis

he startup ecosystem in the country suffers from the plague of unsustainable business models. When the basics are not right, expanding further would only result in a higher burn rate. Further, the bearish trends in the startup funding market will result in many startups finding themselves short of funds very soon and would need a change of strategy at the very fundamental level.

Profit reached out to a source that was familiar with the financials of ezBike who vetted claims of the founders regarding the unit economics and bike costs. He further explained that for the existing ride sharing model, even if the depreciation (cost of using assets) is included the company would still be on the positive side in terms of unit economics. Therefore, it means that the company’s business model is a robust one and has sustainability. The main reason for this is low overheads as there are no drivers and docking costs, while majority staff is unskilled and marketing and promotional cost is also negligible. In comparison, ride hailing services like careem burn a substantial amount in promotions and driver bonuses. While analyzing the company’s financial data, we realized that another factor which works for ezBike is that through a bifurcated supply chain and a local assembly they are able to build the final product at a very competitive cost. Further, using debt financing to facilitate the buyers would allow them to penetrate a low income market. While using financing options for their stock (fleet) will help their cash cycle and also reduce risk. However, the bifurcated supply channels also means that ezBike’s success is heavily dependent on its strategic partnerships both at the backend of the chain as well as the frontend. This might cause problems if any of those partners backout. The strategic partnerships would also include the delivery services. Foodpanda has around 50,000 riders while Airlifts fleet is around 40,000. Other services are also potential partners but the number of their riders is well below the aforementioned figures. ezBike aims for an assembly of 20,000 units annually which seems to be on a higher side given that the numbers for last mile delivery bikes are limited and the market won’t operate under a complete EV model in the near future. Further, the delivery services are churning out huge losses and one example is Airift which has significantly reduced its operations recently. This might leave ezBike with an idle capacity that would be detrimental as overheads would increase. As far as the product is concerned, lithium-ion cells can rapidly release the energy they contain by venting smoke and flames in a manner that can ignite nearby materials as well as other lithium-ion cells. Negative public perceptions regarding the suitability of lithium-ion cells or any future incident involving lithium-ion cells, such as a vehicle or other fire, could seriously harm their reputation. Ola, an Indian e-scooter manufacturer came under fire when its scooters literally caught fire. As per News-18 an Indian publication, “Recently, there have been multiple incidents of electric

“We chose to operate under a dockless model because it enables better mobility for the customer. If we see that a bike is somewhere that is not safe or chances of it getting booked from there are low our repositioning team goes there and relocates the bike to a safe and high demand area.” Ali Moeen, co-found ezBike vehicles (EVs) catching fire and resulting in deaths and severe injuries to people.” Additionally, debt financing the vehicles would be challenging as Banks will be reluctant to lend to delivery riders without guarantees due to high credit risk involved as these riders hail from a low income background. While convincing the riders would also be an uphill task. Reasons include; getting the message across and explaining the cost savings, convincing them to pay installments and the fact that riders don’t use bikes just for deliveries but also their personal use and utilities of ezBike’s vehicle can be questioned in that case. The competitive advantage for the company seems to be its learnings from being in operation for more than a year and a half. However, there is a reason why Evs haven’t gained the traction in Pakistan that one would expect given the rising cost of fuel. The reason is a non-existent charging and maintenance ecosystem. The founders of ezBike are aware of this fact and aim to develop an ecosystem and replicate the success of the likes of GoGoro, a Taiwanese electric scooter, that earns around

30% of its revenue from just its battery swapping and maintenance services. As far as the scooter sharing business is concerned the company is not looking to rapidly expand in that segment. However, they might be better off partnering with the public sector to expand the last mile solution in the future. The founder did indicate that they were evaluating an opportunity with a certain city administration which might lead to their first partnership in the public sector. If the overall model of ezBike and their plan is evaluated from an investor’s point of view, it seems comparatively less riskier than some recent startups in the mobility space. This is primarily due to a low sunk cost model. However, if the company is to grow and maintain its first mover advantage, a rapid vertical expansion is necessary and as per Profit’s estimate for that they would need to raise a further capital of anywhere between $5m-$15m.

Supporting Graphics

TECH TRANSPORT

By Saad Tanvir

here seems to have been a marked shift in the way that Pakistani companies are operating. Marketing strategies now have a greater emphasis on branding and brand equity, with grand old companies diversifying their products under a range of brands - developing both economical and luxury categories often in the same stores. The change is a direct result of changing times over the past decade and a half. As international chains have made their way to Pakistan, imported products have resulted in thriving industries developing around them, and social media culture has altered how consumers perceive products companies are trying to shift from a sales-oriented approach to a market-oriented approach. With more emphasis on brand building, numerous organizations are transforming their marketing strategies to rejuvenate their products and create a brand image that’s going to last much longer than their products. Brands are developing in a diverse range of

BRANDING

industries including automobiles, restaurants, uncooked & cooked food products, apparels & footwear, home appliances, perfumes, and much more. About 10 years ago, nobody would have thought that the importance of branding would grow at such a level. Well, some brands such as paradise (chocolate), Service shoes and perhaps Pakistan’s first locally manufactured car ‘Adam Revo’, could not sustain their consumers owing to the lack of branding that held them back. Hence, the new products are now more focused towards branding their products to create their image, rather than focusing solely on sales. The world has changed, and so has the business landscape. The concept of integrated marketing strategy seems like a reality now more than ever, even in Pakistan. Gone are the days when consumers were attracted by pompous audio-visual extravaganza. It is a much more sophisticated game now. Here are some Pakistani companies that are here to play that branding game, and what they’ve done to make sure it works out for them.

Servis shoes Shifting towards brand development

few decades ago, the only competitor Service had was Bata. The concept of branding was futile back then. The most a company would do, was to launch adverts on mainstream media to raise awareness for a brand. The primary goal was to maximize sales and reap its fruits in the short term. There was no concept of brand profiling or brand development. The idea of consumer driven marketing strategy was rather abstract, and marketing was simply correlated with advertising. Targeting, segmentation, differentiation, and positioning, were all read, studied, and understood, but not implemented. Now, with the advent of globalization, the competition has drastically increased, with an increase in both – local and international challenges. The world has witnessed a globalization of markets where the competition is no longer confined to a certain locality but has expanded to the world at large. The need for branding augmented when the accessibility of international consumer products accelerated.

SERVIS BRANDS ‘Ndure’ Ndure combines vogue statements with comfort. It offers a product that attract the youth and provides reliability for the trendy urban youth.

‘LIZA’ Adding modern styling to the standard everyday footwear, Liza covers a wide variety that caters different occasions and lifestyles for women.

‘TZ’ For the young kids who fail to realize their needs. T.Z. offers both fashionable and comfortable shoes in engaging colorful designs that charm give them a charming appearance.

Servis shoes was one of the victims of conventional marketing and had not managed to build itself a long-lasting brand. Recently, with the launch of Ndure as its flagship brand, Servis has sought to transform this insufficiency and position itself as a prominent footwear brand for its target audience. With an increase in its marketing budget and a significant focus towards brand optimization, Servis seeks to give itself a separate identity and profile a brand that would create a greater impact on its consumers, create a point of difference, and hence enhance its competitiveness.

The evolution of Imtiaz and its pivot to branding

mtiaz’s story begins from 1955 when Imtiaz was merely a Kiryani story in Bahadurabad. Inspired by one of the largest chains in Singapore - Al-Mustafa

‘SKOOZ’ Combining comfort and sturdiness, Skooz supply’s a holistic vary of faculty shoes that follow uniform needs and still offer styles that children will decide consistent with their own preference.

‘CALZA’ Covering the normal everyday necessities for men, Calza offers a good selection that gives satisfaction fashionable.

store - Imtiaz Abbasi, Imtiaz’s Managing Director, sought to apply a similar business model in Pakistan. With the production-oriented approach, Imtiaz focused on expanding its product portfolio targeting the middle class and witnessed a favorable response. Hence, the journey began. Imtiaz witnessed a mushrooming growth in the 1980s onwards with the addition of more and more products to its product portfolio based on the ‘economic pricing strategy’. The core products were rice, flour, sugar, salt, cooking oil and spices, in essence, the ‘Maheenay ka Rashan’. Imtiaz then went on to establish in house manufacturing facilities for these core products – Rice & Flour Mills – as well as spice-grinding, cleaning, and packaging facility, to sustain its economic pricing strategy. With the digital revolution and tech disruption, the importance of branding

grew, and this caused Imtiaz to pivot from supplying non-branded low-budget products to high value branded products. Imtiaz realized that with such a massive product line, it could provide greater value to its target audience by providing them greater quality at much cheaper rates. With such a vast network of superstores, Imtiaz sought to exploit this by providing its customers with Imtiaz-made products rather than externally produced goods. It started this with the introduction of unbranded cooking oil, rice, spices, sugar, and flour. (The economy pricing strategy). Witnessing brand loyalty and brand consciousness to be a fundamental object in the retail market. Imtiaz introduced its own low-cost, high-value brands to further target its consumers and create brand awareness. Each brand would target a different segment of the market based on demographics, psychographics & cognitive behavioral patterns. With the launch of Ponam as Imtiaz’s first brand for agricultural commodities and spices; Imtiaz gave its core products an identity. Ponam was a signature of quality and quantity both within the domain of a competitive pricing strategy. Proving to be a great success, Ponam provided a platform to Imtiaz to launch multitudes of brands including: Sabiha’s; Brios; Bakings; Fresh choice; and Home-sense. Each with a separate identity, targeting a diverse set of audience, with a distinct goal, and a discrete brand profile altogether.

Brands

Products

Vision

Ponam

pulses (DAAL), rice, flour, spices, sugar, grains, and black salt

“The taste of Nation!”

Bakings

Freshly baked products such as cakes, sandwiches, and other things.

“The Oven Experts” “We bake goodness”

Sabiha’s

A wide variety of fashionable apparel, footwear, and jewelry for women

“Revive the intermix culture of Pakistan; its people, art & artisans.”

Brios

A high fiber & protein breakfast with packaging that protects nutritional values and taste following International Standard packaging

“Easy cooking oats“

Fresh choice

Packed food

Home sense

Household products including Tissue box, Handwash, Toilet roll, Floor cleaner, Bathroom cleaner

Arsenal for a variety of delicious food including a wide range of exotic cuisines “Home sense takes care of all your household and cleaning needs.” “A brand you can trust”

Story of Warp – the Pakistani entrepreneur who made it to Paris

high value brand of leather handbags created and led by a Pakistani female entrepreneur Hirra Babar, has shown how brand equity can be used to maximize value. Launched in 2016, Warp has accomplished exponential growth after starting from a small niche in Lahore, to being appearing in the Paris Fashion week in 2019, 2020 and 2021, as well as being a part of Mipel (a prestigious leather handbag and accessories event) in Milan in 2018 being selected by the National Chamber of Italian Fashion to display its pieces at the event in the emerging brands category. The brand has been featured in numerous Publications including the Forbes

“Warp essentially means to twist, so I wanted to re-interpret handbags in a contemporary form. A good design is something that evokes the five senses…the shape, for instance, is so important, it should pique a potential buyer’s interest. A handbag needs to have its own character” Hirra Babar, founder and creative director of Warp

magazine in the article “The Handbag from Lahore that made it to Paris Fashion Week’’ by Sonia Rehman, The Friday Times in the article “’Made in Pakistan’ line of handbags hits Fashion weeks in Milan, Paris and Beyond”, Fashion Times Magazine and many more. At present, Warp has its presence in Western Europe, South Asia, East Asia, North America, and many more, with expansion plans for the middle east as well. Warp sources handbags from Pakistan – primarily from Lahore – maintaining that the bags are completely ‘made in Pakistan’ and guaranteeing premium quality, in Hirra’s own words – “handcrafted in finest quality materials in Lahore, the cultural capital of Pakistan.” Hirra Babar, who completed her MBA from Lahore University of Management Sciences (LUMS) in 2014, always “dreamt of creating a line of bags for the modern woman.” She sought to work for a renowned fashion company before taking off on her journey with Warp. Her goal was to comprehend the ins and outs of the fashion industry so she could create a brand of her own. While working in the fashion industry, she conducted an abundance of research, traveled to different markets, spoke to a plethora of people from diverse backgrounds and sought to understand their needs. Hirra had envisioned from the very launch that she is going to take her brand to the global markets and aligned her strategic objectives accordingly. While on her visits to the European markets to conduct research, Hirra observed that much of the luxury European brands were produced by “small family-owned workshops.” She realized that with extra focus on quality and a certain ‘finesse,’ the same niche can be produced in Pakistan as well, with similar hand-crafting techniques and tools, however, at a lower cost. Hirra wanted to signify Warp as a perfect blend of good design and functionality targeting modern women, providing them value, and superior quality. Hirra lays great

emphasis on Warp being a 100% Pakistani lebel and a home-grown brand, which sources its complete supplies from Pakistan. She believes that not only does this help Warp in maintaining an efficient & effective supply chain, it gives a chance to local Pakistani craftsmen to enhance their skills and compete on a global level. Hirra maintains that installing the concept of brand quality, attention to detail and finesse was one of her biggest challenges pertaining to her brand; After getting her first international order for 50 bags for a concept store in Seoul, South Korea rejected by the client based on quality, she realized that the dearth of these three aspects in the Pakistani industry was one of the most crucial aspects to the plight of home-grown brands. She claims “Attitude towards work and understanding the concept of quality is definitely the biggest challenge we face. We as a nation have a very laissez-faire attitude towards work. We had to work really hard with the craftsmen-community to install the idea of finesse and attention to detail and that cutting corners and finding short-cuts will not get us anywhere.” As per Hirra, Warp faced numerous obstacles initially including lack of skills, lack of funding, lack of marketing and customer acquisition, lack of quality maintenance, logistical issues, online payment issues and much more. With time, Hirra and her team continued to learn as they made mistakes. In Hirra’s words Warp has remained in a “Constant learning phase” and the more it explores, the more experienced the team gets. With every problem, the team learns, and the brand grows! Initially Warp had no competition, as it was a niche market in Pakistan that the brand was catering to. She observed an immense gap in the market, realizing that “Pakistan is one of the largest leather exporters in the world and it’s sad that we don’t have a single commercial brand that’s selling high-value goods overseas.” She sought to fill this gap with the vision of

BRANDING

“make local and sell global.” As the brand gained traction over digital media, her first international order from South Korea became a disaster due insufficient attention to detail. Starting global, Hirra experienced tremendous challenges with regards to the quality, logistics, sales and brand management. She believes that after order, she would place significant importance on feedback and train Warp’s craftsmen accordingly, until she managed to surpass the international quality standards for handbags. Warp maintains a value based pricing strategy as the brand equity and the utility of her handbags are of high value. Her handbags range from $80 to $400, including a series of ‘hexella’ handbags in Warp’s distinctive & elegant geometric design.

MO AM - Hand stitched sweaters from Lahore

O AM is a contemporary luxury brand founded by an emerging knitwear designer based in Lahore, Pakistan. MO AM’s journey to handmade knitwear began in 2020. The brand is an embodiment of slow-fashion and sustainability that is reviving the age-old tradition of hand-knitting and crafting garments with love and care. MO AM maintains an all-women team that invests in both employing and training females while providing them the opportunity to earn from the comfort of their respective homes. The brand provides rather specialized & niche products relying on the talent and expertise of small teams of knitters in local ateliers, where every piece is hand knitted. MO AM is a fairly recent brand attaining rapid growth within a couple of years. By adopting a diverse range of marketing strategies and branding techniques MO AM has managed to attract both local and well as international consumers. The brand has used an integrated marketing strategy, to provide its target audience with the right product. The product functionality is primarily based on quality, sustainability, and customer satisfaction. The pricing is done accordingly, where a value-based pricing strategy is adopted. Pro-

“I have faced an abundance of challenges throughout this journey including operational inefficiencies, lack of an international Payment mechanism in Pakistan (Paypal), quality maintenance, but perhaps the biggest issue has been investment” Momina Amjad, Founder of MO AM motion is primarily done through social media (paid and non-paid promotion), influencer marketing, direct selling, fashion events, and word-of-mouth. The product is seasonal ‘winter-wear’; henceforth, peak sale period is from November to January for local sales, whereby international sales extend throughout the year, especially from western markets. Momina argues that despite the fact that all other challenges could be resolved in one way or the other, lack of investment mechanism is the key issue concerning Pakistani brands. Although the culture of Venture Capitalists and Private equity has gained pace in the past few years, their primary focus is tech based startups while conventional startups still have to bootstrap. These VCs - both local and international - essentially look for technological innovation which then enhances their scalability. On the other hand, brands which are not ‘Tech-based,’ are subject to immense pressure looking for funding. Momina believes that creating a brand is more nuanced than it seems. It requires extensive research, Total Quality Management (TQM), Extraordinary emphasis on Customer Relationship Management (CRM), targeted

Customer Driven Marketing Strategy (CDMS), and much more. In order to compete, a brand needs a separate identity and a profile that speaks to its target audience & showcase products capability. She opines that a brand needs to communicate a message from the producer and that pricing is crucial at first, but once the brand has grown its customer base, what’s more important is reliability, credibility, durability and sustainability. MOAM has three key message that it seeks to convey to its target market:· • Women empowerment - All MOAM sweaters are hand knitted by female employees, from the comfort of their respective homes.· • Sustainability - The raw material used in all MOAM sweaters is recyclable acrylic yarn, which can be reused to make Shalls or Sweaters of different designs. • Premium quality - The raw material used by MOAM is a high-value, high-quality and highly expensive yarn. MOAM places utmost importance on customer satisfaction and product quality where the products are made with specialized and trained labor. The primary marketing tool MOAM uses is digital media including social media, youtube, SEO etc. MOAM has placed its sweaters on different online marketplaces both local and international - including fashion stores such as ’Specter.pk. The vision of the company is to take its brand to the western markets directly by setting up both online and offline stores in the fashion capitals of the world. Momina believes that there is extensive demand for her products in the European, North American and North Asian markets because of colder weather conditions. She believes that this demand can be catered to by partnering up with both large scale and small scale clothing stores in these regions, participating in a diverse range of fashion events to enhance footprint, and precise use of online marketing tools. However, she maintains that this requires investments and the investment mechanism in Pakistan is not very effective when it comes to conventional niche products that cater to a relatively smaller proportion of the population. n

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