08 08 Crop Talk: Tomayto or Tomahto — just let there be more 12 The barefaced lies of New Metro City 18 18 Millions of homes have been destroyed. Could we rebuild them with solar rooftops? Uzair Younas 20 Housing Reconstruction: Building Back Better Ammar H Khan 22 A case of exploding tomatoes Femme Finance 24 24 As JazzCash devours another CEO, where will they go next? 27 No Miftah, don’t ask us to live within our means 29 he growing divide between the interbank and open market 08 29 12 CON TENTS Publishing Editor: Babar Nizami - Editor: Khurram Husain - Joint Editor: Yousaf Nizami Assistant Editors: Abdullah Niazi I Sabina Qazi - Sub-Editors: Mariam Zermina | Basit Munawar Editor Multimedia: Umar Aziz - Video Editors: Talha Farooqi I Fawad Shakeel Reporters: Ariba Shahid I Taimoor Hassan l Shahab Omer l Ghulam Abbass l Ahmad Ahmadani Shehzad Paracha l Aziz Buneri | Maliha Abidi | Daniyal Ahmad | Ahtasam Ahmad | Asad Kamran Chief of Staff: Maliha Abidi - Regional Heads of Marketing: Mudassir Alam (Khi) | Zufiqar Butt (Lhe) | Malik Israr (Isb) Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk Profit
7NATIVE CONTENT
has a heritage of more than 50 years where they have contributed to the society, though their products, services and awareness activi ties. To take these contributions at a global scale, they have commenced alignment with United Nations Sustainable Development Goals 2030 through a workshop in February, 2022. They constituted the sustainability committee tasked with defining their strategy that is most relevant to their business, values and promise of enabling health and happiness.
CCL
CCL have successfully launched CCL Hand in Hand Sustainability under the UN SDG 2030 charter across the organization on 23 August, 2022. The event was attended by Head Office and Plant teams, as well as global teams from 22 countries virtually. This historic launch means CCL will now work towards
reducing its carbon footprint and continue its journey towards a healthier happier future. The UN SDG 3 (Good Health and Well Being) and 13 (Climate Action) have been chosen, that best encompass the value chain, manufacturing pro cess and those whose lives are touched through their products and services. This sustainability strategy is based on 5 pillars; Energy, Materials, Processes, Employees and the Community. Under these pillars, they have created teams that have devised actions for 2022 – 23.
Press Release
At the Hand in Hand Kick-Off Event Kashif Sajjad Sheikh, Chairman CCL said, “I take this opportunity to reach out to all our employees across the globe with these action plans and engage them for this great cause. I urge everyone to learn about sustainability through our workshops. By continuing to work together and prioritising sustainability, we will do our part to ensure a greener tomorrow for future generations to come.”
CCL
I take this opportunity to reach out to all our employees across the globe with these action plans and engage them for this great cause. I urge everyone to learn about sustainability through our workshops. By continuing to work together and prioritising sustainability, we will do our part to ensure a greener tomorrow for future generations to come
Kashif Sajjad Sheikh, Chairman CCL
GoalsundertakePharmaceuticalsUNSustainabilityinPakistan
Yet the story is not just one of hope. There are also the typical struc tural inefficiencies of Pakistan’s agricultural map. For example, despite tomatoes being a major culinary component, Pakistan is a net importer of tomatoes and tomato products. For a country that requires tomatoes to cook nearly all of its staple dishes and is obsessed with ketchup (using it with everything from fries to pakoras) that is a shockingly dismal statistic. Especially considering that in the past couple of decades there has been a very marked increase in the domestic demand for tomatoes in Pakistan — according to the FAO Balance Sheet data, per capita per annum con sumption of tomato in Pakistan during 2013 was 4.8 kg, which is one of the lowest in the world. However, the growth in per capita consumption of tomatoes in Pakistan is quite high. It has increased from 1.86 kg in 2001 with an average growth rate of 7.5% per annum.
Significantly more delicate and equally if not more im portant to the culinary requirements of Pakistan is the tomato. Botanically categorised as a fruit not as a vegetable, it is the second major component of salan and is yet another crop that has suffered from more than the recent floods. But just like it is much more delicate compared to the onion, tomatoes have a more complex place in Pakistan’s agricultural landscape and it is a crop that has shown signs of hope particularly in the last couple of decades.
According to a 2020 report of the Planning Commission of Pakistan, the tomato trade deficit of the country has ballooned overtime. It fluctuated widely over the course of the 2010s, particularly in 2016 and 2017 but has resoundingly remained in the net negative. A similar story exists on the growth end of things, with very little investment being put into tomatoes in
Unlike onions, tomatoes grow on a significantly smaller scale in Pakistan. Their story too has been very different. Since independence up until the 1980s, they were grown in Pakistan for sure but in very contained areas. From the 1980s onwards, the area under yield for tomatoes grew but at a sluggish pace. It was at the turn of the century that more importance was paid to the little red fruit that is so vital in our cooking. Between 2001 to 2012 the area under yield and production both nearly doubled. However, after staying stable for a couple of years, the area that is farmed for tomatoes has taken a hit and has continued to do so since 2014.
week we talked about onions. A hard vegetable that has a delicate constitution when it is in the growing stage, but which proves to be a tough nut after harvesting that can weather more than a few bumps and scrapes and has a significantly longer shelf life compared to other vegetables.
8
Last
morethere—TomahtoorTomaytojustletbe
By Abdullah Niazi
At present, with the latest data available from last year, Pakistan has a total area of around 61 thousand hectares under cultivation, with annual production for this area somewhere around 569 thousand tonnes giving an average yield of 9.5 tonnes per hectare. This is, to put it mildly, abysmal. Not only are we not in a position to ex port, it would be a pretty big deal if we were simply able to meet our own net needs for tomato and tomato products.
the country.Thereason, of course, is that tomatoes are not a particularly safe crop in Pakistan. Unlike crops such as wheat and cotton, there is very little concept of a support price. In addition to this, tomatoes are dangerously delicate for farmers to invest in. Even though they are in constant demand, for their farming to be profitable modern techniques are needed.
market, global export of fresh tomato is worth $8.8 billion, while the export of tomato and its products has reached over $13 billion.
of Pakistan’s neighbours lead in ternational tomato production. China and India are the two countries that produce the most tomatoes in the world. In comparison, Pakistan ranks 33rd among this list. To understand the size of the
The tomato potential
Two
In comparison to Pa kistan’s average yield of less than 10 per hectare, the global production of tomato is about 182 million tonnes obtained from 4.8 million ha with an average yield of 38 tonnes per
The fate of the tomato
hectares. That means Pakistan is behind by around 400% on the per area yield that it gets from itsAstomatoes.theearlier mentioned report of the planning commission laments, on account of a rising population the demand for tomato and its products in the country is expanding at a very high rate of 7.3% per annum, much higher than the increase in its domestic production causing a ballooning tomato trade deficit.
However, this rise was not because of any particular strategy. The demand for tomatoes was rising in Pakistan, and that meant more area was coming under cultivation. In the early days, some government attention was
AGRI ANALYSIS
At the same time, there are larger structural reasons that need to be discussed to fully un derstand the stature of this complex crop.
For Pakistan to become a major exporter of tomatoes would take a lot. As has been pointed out, tomatoes are a delicate fruit and require very specific conditions post harvest for which we do not have the capacity. There are not enough storage facilities, enough transpor tation vehicles, and experience to turn Pakistan into a major exporter. On top of that, the to matoes produced in Pakistan are of the shorter, more elongated variety rather than the more desirable round tomatoes and cherry tomatoes. That, however, is also not what we mean to suggest. Even though Pakistan cannot become a major exporter, what it can do is be come a significant exporter. Currently, our major markets for tomato exports are the middle east and Afghanistan. There are other markets we can look towards.
current state of tomato production is better than what it was two decades ago. Tomato production has risen since the early 2000s. In fact, in 1980 the total area under cultivation for tomatoes was less than 30,000 hectares. This rose steadily over the 1980s to get to just underneath 50,000 hectares under cultivation in 1990. The real era for growth for the tomato crop in the country came between 1996 to around 2005. From 1995-99 the area growing tomatoes grew by 20,000 hectares to reach around 70,000 hectares under cultivation.
“The country fails to play a significant role in international export markets, and benefit from a fast increasing export of fresh tomato and its products. Pakistan earns only 28% of the world average export price suggesting great challenges in improving the tomato value chain. The country can export less than 1% of its production while the world average export-production ratio is 4.7%. Pakistan has great potential to improve its export-produc tion ratio because of its lower farm gate prices than the world average,” it reads.
Pakistan’s
Tomatoes are grown all year around in Pakistan. For most, seeds are grown in nurseries and then supplanted into farms where they grow and increase in yield. There are also
A program of variety development suited to the local environment is necessary along with the establishment of a Tomato Research Stations need to be established in cluster areas in Sindh, Balochistan, and KP which can work under the main National Tomato Research Institute in Sindh for development of Toma to hybrid and open pollinated varieties. The recommendations of the planning commission also ad the establishment of certified tomato nurseries for healthy seedlings, promotion of good agronomic practices, publishing tech nical guidelines, managing and certification of modern tomato fields and tomato puree plants to meet the quality fresh tomato and its product demand in local and export markets, and establishment of cold storages, and pack houses by the FEG all among the steps that need to be taken if anything is to become of our tomatoes.Attimes in this series where we intend to discuss different crops and their status in Pakistan, the talking points will seem repetitive. On other occasions, they will seem radically different. However, in each case they are recommendations that need to be repeated ad nauseum largely because the entire agricultural infrastructure in the country faces a host of common problems that have similar solutions. More research, more money, more assistance will all lead to our food security issues improving. n
Area under tomato in Pakistan has more than doubled in Pakistan from 29.4 thousand hectare in 1995 to 61.9 million ha in 2016 with an annual growth rate of 4.9%. Similarly, production has also increased from 294.1 thousand tonnes to 587.1 thousand tonnes during the corresponding year producing an average annual growth of 4.4%. All of the increase in tomato production in the country came from area expansion, without any improvement in per hectare
However,yield.largely the demand contin ued to outrun the increase in production and because there was very little to be done in the way of improving cultivation techniques the tomatoes continued to languish and Pakistan’ reliance on imported tomatoes continued. With imports from India banned in recent years, Iran and Afghanistan have not quite been able to fill the gap.
10 AGRI ANALYSIS
paid to the crop with new seed varieties being introduced and incentives given.
In this time, great potential has been seen in Sindh and Balochistan. Sindh has emerged as the highest tomato producing province with tomato grown on an area of 27.9 thousand ha followed by Khyber Pakhtunkhwa (KP), Balochistan and Punjab provinces respectively. The climatic and soil condition of Sindh province is favourable for successful cultivation of Tomato. The total share of Sindh province for tomato area is 43.6 percent. Balochistan is also a leading tomato producing province and has big potential for tomato production as it occupies 20.8% of tomato area and 24.6% of production in the country, according to the planning commission report.
What needs to be done?
have been some encouraging signs. Tomato production in Pakistan has picked up significantly since the turn of the century, doubling over a ten year period, but much needs to be done before tomatoes are sustainable. For this, the most important factor will be making sure we get the most yield per area possible.
other popular methods of growing tomatoes, particularly via tunnel farming. Majority of farmers used to raise a nursery and then after 30 -40 days they transplant tomato seedlings in the field. For nursery raising 100 - 125 g/ acre tomato seed is required. However, all of this requires significant time, investment, and know-how. For the average tomato farm, much assistance is required.
There
12
REAL ESTATE
Hafiz Irfan, RDA spokesperson
The message is clear. Bilal might be running the project, but with the express nod of approval from his grandfather. The results were immediate. Right after the dinner, investment started pouring into New Metro City GujarWithinKhan.days, a massive marketing cam paign was launched. The entrance to DHA Lahore from the Walton end was covered in huge billboards. Rawalpindi produced a sim ilar picture. Television channels ran elaborate ads promising a utopian life in the under-construction society. Simultaneously, property dealers started drumming up the project and telling their clients it was an opportunity
What they are doing instead is getting together enough capital from these ‘advance bookings’ to actually be able to buy the land required for the project. The people investing are told their plots are still in the develop ment stage and they will only be told where their plot is once the technical aspects of mapping and zoning are figured out. The truth is that the land has not yet been pur chased by the real estate developer.
The anatomy of real estate fraud
The dinner took place in the beginning of August. But it was not a surprise to any of the people there. Two weeks before on the 14th of July 2022, the youtube account of New Metro City posted a video titled ‘Best Wishes by Malik Riaz for his grandson Bilal Bashir Malik.’ In the video, Malik Riaz can be seen piling praise on his grandson. “I want to make it clear. New Metro City’s commitment is Bahria Town’s commitment. I am proud of Bilal, and I know he will maintain the stan dards of our family, and do even better work than what we did in Bahria Town. He will turn Sirai Alamgir and any other such cities in Pakistan into London, Paris, and Dubai.”
14
The way it works is pretty straightforward and well known. What happens is that whenever a developer launches a housing scheme, they never have enough investment to buy a large enough tract of land to impress possible buyers. What they do then is go on a marketing campaign in which they announce a new housing scheme, often getting celebrity endorsements and pasting huge advertisements all over the cityscape. They then offer what they call ‘advance booking’ and present it as a chance to be some of the first people to buy plots for cheap in the new society.
So how do they get people to buy these prospective plots that they cannot see or visit? Every savvy developer hires an army
Then there is the fact that BSM Devel opers themselves have confirmed to Profit that they have not acquired the land in Gujar Khan and have only made plans to do so as of now. That means they are accepting money for plots without having acquired the land — which is against RDA regulations.
This is, for all intents and purposes, a typical Pakistani real estate project scam. One where developers fail to acquire land before developing it, use aggressive marketing techniques to get people to buy ‘files’ or ‘cer tificates’ in the lieu of plots, and then leave these investors to languish for years.
At some point during the dinner hosted by Bilal, Zaroon Masood, the country head for BSM Developers Pakistan, got up to address the crowd. He thanked the sales partners and real estate agents for coming to the dinner, many of whom had travelled from Islamabad and Rawalpindi. And then he went on a sales pitch for BSM Developers latest project — The New Metro City housing society in the hilly Gujar Khan area in Rawalpindi. This would be the second project under the ‘New Metro World’ name being undertaken by Bilal, with the first currently still under development in Sirai Alamgir.
A
month ago, real estate agents, sales partners, consultants and prospective investors were all invited to a dinner in Lahore. They turned up in droves. The dinner was a lav ish affair with a variety of dishes and raucous merrymaking.Allofthem were there at the beck of one man: Bilal Bashir Malik. Young, smartly dressed, well-spoken, and surrounded at all times by a retinue of guards, drivers, and associates, he is the CEO of Bilal Steel Mills, a business that has now expanded into the world of real estate in the form of BSM De velopers. He is also the maternal grandson of property mogul Malik Riaz.
By Shahab Omer
not to be missed. The ads carried claims that the society was approved by the Rawalpindi Development Authority (RDA) and was ready for plotting.Perhaps one of the strangest parts of the entire campaign was a video advertise ment. The ad features HD footage of horses, jingoism, and vague poetics about the Potohar region all narrated by the voice of legendary thespian Zia Mohyeddin. The ad itself makes no sense. None at all. But what it does tell you is two things — whoever made the ad has money and they hired a celebrity to narrate it. In Pakistan, money and fame give you one crucial element to run a business — legiti macy.Of
course, the reality is not quite as pretty as the picture being painted through the advertisement. And all the money being spent to gain this legitimacy was being done so precisely because the project has very little of it in reality. For starters, the RDA has confirmed to Profit that the society is entirely illegal and not RDA approved despite their claims, which they have termed “barefaced lies.” When Profit first called the RDA spokesperson to inquire about whether the society had been approved by the RDA the spokesperson immediately responded by saying “illegal hai, illegal hai, illegal hai.”
t the earlier mentioned dinner, Masood announced an early-bird balloting opportunity to invest in the project on the 20th of August. None of these people had seen the project yet, but the money started rolling in. Some of the investors knew that since the project was so openly backed by Malik Riaz, it was an opportunity to sink their teeth into a project that was about to get a heavy dose of marketing, and that if they invested they could convince a lot of eventual plot buyers to spend money on it.
It is a story we have seen plenty of times. Investors in the hopes of making mon
ey or having savings for their future invest in these housing societies. They trust them because the societies run massive market ing campaigns with callous disregard for the truth. They also trust them because the project is backed by large groups and famous business families who hire celebrities as ambassadors for their projects. We have seen it happen before in Gujranwala and in Chakri and in so many other places.In the end, after the investor has surrendered their money, they are flippantly informed that the project is pending approval and given some halfbaked excuse, leaving them to the dogs.
A
“The list of all approved societies is available on our website. An NOC has not been issued to New Metro City Gujar Khan. The status of the said society is also being asked by various people to which we are responding the same way — it is illegal”
The situation of New Metro City in Gujar Khan is very similar. And it worked. A sales partner of New Metro City said on the condition of anonymity that by August 20, BSM Developers had collected more than Rs20 billion by selling plots of different sizes — plots that they had not acquired yet let alone “Thedevelop.purpose of the early bird balloting was to create such a hype that more people would be tempted to get a plot in A block although the allotment was committed to only a select few people in this draw. If one guesses accordingly, if Rs20 billion was collected before the draw, after the draw, this amount will be more than double because the society has created the payment plan in such a way,” they said.
The legality issue
the project itself was RDA approved. “How can such a huge advertising campaign be run without approval? Bilal Malik is actually the real grandson of Malik Riaz and is running three real estate projects. One is in Sarai Alamgir, the other is in Gwadar and the third is in Gujar Khan,” he
Malik Riaz, real estate developer
of this leads to the question of whether or not this kind of real estate project is legal. There are a few questions to ask here. The first is, have BSM Developers acquired the land for development in Gujar Khan? If they haven’t, how can they know they will be able to provide plots to the people they are committing to. The second question is, if the land has not been acquired, is the society approved by the RDA, since the authority’s regulations hold that societies cannot go into marketing stage until and unless they have acquired a certain percentage of the land. And if the RDA has not approved the society, then how in the world have they been allowed to advertise all over the place with no consequence?
“The list of all approved societies is available on our website. An NOC has not been issued to New Metro City Gujar Khan. The status of said society is also being asked by various people to which we are responding the same way — it is illegal.There are only 60 approved housing societies on the RDA website and the name of New Metro City is nowhere in the list,” says RDA spokesperson, Hafiz Irfan. The problem is that despite the RDA telling people the society is illegal, both developers and real estate agents that they have hired to promote their society are more influential than even the RDA.
In a meeting at the New Metro City’s office in DHA Lahore, Bilal Malik’s personal staff officer, Asana Musa told Profit that the former was unavailable for comment but that he would be available to answer any questions. When Profit asked him about the legality of the society, Musa admitted that the land had still not been acquired in Gujar Khan but that
of local property dealers on commission to sell files for their scheme. Now, you might think that this is simply an issue of semantics of what customers are promised and shady selling techniques, except the problem goes deeper than this. For example, if enough in vestments are not collected and the project is halted, the people that bought the files could have tied up their money for decades to come.
“I want to make it clear, New Metro City’s commitment is Bahria Town’s commitment. I am proud of Bilal, and I know he will maintain the standards of our family, and do even better work than what we did in Bahria Town. He will turn Sirai Alamgir and any other such cities in Pakistan into London, Paris, and Dubai”
A screengrab from a youtube video promoting Bilal Malik’s project.
All
The last part of the statement is true. This is not a green area, and is in fact legal for society building. More importantly, it is not government land. Most people have their ancestral lands in Gujar Khan and some are willing to sell to Bilal Malik. However, the problem is that a lot of people in the area do not want to sell as well. Without acquiring the land, the BSM Developers will be unable to complete plotting and planning of the project. So how have they then been able to market the project and even sell files and hold early-bird balloting for Block A in the project? According to the RDA, it is all a complete lie.
REAL ESTATE
It is, essentially, a classic case of having the cart before the horse. Any real estate devel oped should first acquire land, get permission from the authorities, and then start marketing and selling the project. Instead, projects like
“Themaintained.landpurchase process for New Metro City has not been completed yet, and the final area of the project has also not been determined. The process is underway, how ever, and will be completed soon. There have been other murmurings also that the project is in a green area. It is in a hilly area but it is completely legal to make a society over here.”
REAL ESTATE
T
This is a sad reality. The RDA has ticked all of the necessary boxes. Their spokesperson has declared the society illegal to the press and they have even put up an advertisement in a local paper. However, other than these measures to cover their own tracks there has been nothing else the RDA has done. One of the big reasons for this, as explained by locals and property developers involved in the proj ect, is that the police and RDA are both afraid of taking action against a project backed by Malik
“We have removed all those signboards.
Why the impunity?
“I myself am a part of the project and know that it is a fraud. That is just the nature of the real estate sector. However, nothing can be done about it. We are all a part of it and make profit from it. The reality is that the RDA cannot do anything. Even if they decided to conduct the operation, they would get such little cooperation from the police that it wouldn’t make a dent to New Metro City.”
“We clearly inform people that they must check with the revenue department whether the said project has enough land or not. Likewise, it is important for the buyer to
“T
Conclusion
A senior official of WCB informed Profit that the client does not approach the board directly for booking such sites but they are given on rent through vendors. “Now here it must be negligence on the part of the board that legal documents of such clients are not checked before advertising them and the same practice continues in DHA.This is why illegal real estate projects easily manage to fool the public by promoting themselves.”
16
“EvenRiaz. if the RDA were to request a police operation, at first the police would not coop erate. They would ask them to keep delaying and warn the other side instead,” said the sales partner Profit spoke to. “Once they would finally get to conduct an operation, they would just stand around and at most arrest a couple of uninvolved people and register an FIR to cover their tracks and that would be that. The marketing would continue and the society would go nowhere.”Another official of RDA, on the condition of anonymity, informed Profit that the authority had issued regular guidelines regarding invest ing in housing societies or real estate projects to inform the public and keep them away from fraud. However, the message rarely has enough reach.
Despite the RDA’s rejection of the project and statement that it is illegal, New Metro City Gujar Khan has managed to advertise without impunity. The project has been heavily advertised in Walton Cantonment Board (WCB) Lahore limits (which is also the gateway to DHA) with a formal claim that the society is RDA approved.
New Metro City and indeed other societies begin by marketing it first, then trying to (unsuccessfully) get permissions, and then trying to (unsuccessfully) acquire the land. And yes, the RDA can do very little.
At DHA, the client’s advertisements are checked down to the artwork as we have some SOPs. Therefore in view of all such situations only those projects which fulfil all legal require ments are allowed to be advertised.”
The finger pointing is nothing new. The reality is that both the vendor and the canton ment board have a responsibility, but when even the RDA cannot get their message across it allows real estate developers to get away with a lot.
The final victims will be the people who buy these files with the hopes of investment or even a place to live in the future in their hearts. Since the land has not been acquired, and could take ages to do so, the project will be delayed for years to come. Whether any of the victims will get justice or their money back is for the future to know. But precedent would say this is just another case of a faulty housing society. n
here is only one endgame here. As things stand, the story is very familiar and along the same path that so many other real estate projects have gone. The developers will continue collecting money and selling ‘files’ in lieu of plots and people attracted by aggressive marketing will keep coughing up the cash.
he RDA is completely toothless here. In the market, the news is that this society is being run by Malik Riaz’s nephew. People don’t even know that it is his nawasa but just the name Malik Riaz is enough to convince people. If anyone called the RDA number they would tell them it is illegal. In fact, the RDA regularly encourages people to check with them but their reach is very low. Only the people who call and ask find out it is illegal, the rest is kept hush hush,” says one sales partner of the project on the condition of anonymity.
check with the relevant authority attest the approved map of the society and ask for a certified copy of the approved map along with the registration. It is also interesting to note that most of the housing societies do not mention the development costs in their advertisements, whereas it is essential. These details should be well known and in-writing.”Theofficial further said that the RDA has released the list of only approved societies on the web portal which creates con fusion for the common man. “The project which is illegal should be listed separately. The tragedy of our authority is that the of ficial numbers given for public information either do not receive calls or these numbers are givenThis,incorrectly.”ofcourse,is also a commentary against the RDA. Their messaging is pathet ically weak and rarely reaches investors. Large developers so easily swoop in and use mass marketing campaigns and on-ground real estate dealers to hype up a project that they can get away with bare-faced lies. On top of that, it is also understood by some that the high-brass of such development authorities (not necessarily the RDA) often protect large real estate developers because they are too afraid to take action against them.
DHA Lahore Marketing Officer, Ali Raheel strongly denies this and says that DHA’s legal branch checks all legal documents before advertising to anyone. “DHA sites are also rent ed out through vendors. Once it happened that we advertised a real estate project which was restrained by the court from selling the land. The matter was immediately taken up by the legal branch,” he said.
An advertisment placed by the RDA in newspaper declaring that the BSM project has not been approved by the development authority
A
OPINION
A 2-kilowatt solar system can be installed at a cost of roughly $1,000, providing enough electricity to meet the needs of households consuming less than 200 units of electricity a month. This is much of the rural population, especially in the areas affected most severely by the floods. The provision of these systems to rural households will provide them with a necessity to live a modern life, while eliminating the need to spend billions of dollars to expand and maintain the elec tricity grid infrastructure.
The current humanitarian and economic crisis is going to take years to recover from. But it is an opportunity to also leapfrog ahead by making investments that not only improve the lives of those most affected by the floods, but also kickstart the emergence of a decentralized, renewable energy ecosystem in the country. Making such smart, common-sense investments can not only bring long-term benefits to underprivileged households, but also lead to the emergence of new industries and economic opportuni ties within Pakistan. n
Such an investment can also be paired with a plan to skill la bor and incentivize the emergence of service providers in rural areas needed to maintain this infrastructure. As this ecosystem scales, further investments can be made to develop community microgrids, local component manufacturing, and more innovative products such as battery storage that can lower the intermittency of power available.
The immense scale of the destruction in Sindh means that the province will need almost $4 billion just to rebuild its housing stock; Khyber-Pakhtunkhwa will require over $250 million; Punjab almost $163 million; and Balochistan will require another $145 million.
Providing this facility to only 25 percent of affected households who are based in some of the most far-flung areas of the country where the grid has either not yet reached or it is too expensive to maintain it will cost an additional $434 million, an increase of about 10 percent to the total reconstruction costs. As this program scales up and a local ecosystem emerges – bringing economies of scale to lower the costs – the facility can be scaled up to eventually cover every single affected flood-affected household not connected to the grid.
Uzair Younus
These estimates are based on assumptions where $750 a house is provided to people whose homes have been partially destroyed while $6,000 a house is provided for those who have completely lost their homes.The numbers themselves are derived in part from the 2010 flood assessments conducted by the World Bank and the Asian Devel opment Bank, with the cost per home revised upwards to consider inflation and need for overall improvements to structures.
18 COMMENT
Such a program should be combined with a government-backed program to incentivize manufacturing of relevant components, including solar panels, within the country. The capital can be attracted into the relevant manufacturing segments through the demand signal generated by the policy to provide solar rooftop to flood-affected households not connected to the grid. The demand guarantee will provide the necessary predictability to entrepreneurs looking to deploy capital and meet the growing need for solar power in the country.
to not only rebuilt better homes, but to add solar rooftops to the homes of citizens who have been devastated by these floods.
A lot of the homes destroyed are likely to be what is referred to as kaccha homes, meaning that their structure was not built out of robust materials like bricks and cement. There may emerge a perspective that the amount required to rebuild should be revised downwards. This will be folly and in fact the amounts should be revised upwards
Millions of homes have been destroyed. Could we rebuild them with solar rooftops?
The writer is Director of the Pakistan Initiative at the Atlantic Council, a Washington D.C.-based think tank, and host of the podcast Pakistonomy. He tweets @uzairyounus.
s of September 8, 2022, a total of 1.74 million homes have either been partially or fully destroyed across Pakistan during the ongoing floods ravaging that country. 1.5 million of these homes, which is 86 percent of the total, are estimated to be in Sindh. The total damages, based on early assessments, amounts to almost $2.6 billion. Reconstructing these homes will cost an additional $4.28 billion, taking the total financial costs to housing during the floods to $6.9 billion.
This additional cost, which will increase the near-term burden on the exchequer, is going to pay off immense dividends over the long-term, providing cheap, reliable power to the most marginalized of communities in Pakistan, reducing the need for energy imports, eliminating need to extend the grid infrastructure at high costs, and kickstarting the emergence of a micro-grid, renewable energy infra structure in rural Pakistan.
OPINION
Femme Finance
My cooking lady is someone I have known my whole life and she said ‘let me buy the tomatoes from my area for you’ when the price hit Rs500 in Defence/khadda Market/Clifton. It was cheaper but not that much cheaper in her area. For a while it worked out. When the price fell down to Rs350, I complained that it’s still so expensive. She told me to buy puréed cans which she insisted would cost me less. I’m sure it was less but the difference felt negligible to me at the end of the month.
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he extreme fluctuations in prices of tomatoes amongst other staples over the last few weeks have induced a weird kind of panic. Yesterday the price of tomatoes was Rs330 in my area, Defence Phase 6, Karachi. Last week it went up to Rs550 per kilo almost everywhere in the city. In between when I checked on Kravemart, one particular variety was selling for Rs197. When I checked last on 7 September it was Rs279 but of course they refused to deliver these particular stocks of tomatoes to Defence. Pandamart on the same day was selling for Rs205 and was willing to deliver to my area, but I had already bought my tomatoes. When I was discussing this yo-yoing of prices with my colleague Ariba Shahid, she mentioned her mother saying tomatoes in Gulshan were for Rs250 per kilo. What? I had just paid Rs400. That day on the way back from work, I stopped at my vegetable wallah to get stuff for the house, and made it a point to ask him why his tomatoes were more expensive than the ones in Gulshan. I was gearing up for him to tell how substandard those ones must be and how amazing his stock is. Instead, he explained that those must be either from Iran or Afghanistan. I would need a feature story to justify what is happening to Pakistani tomatoes right now and why they are so expensive, but since Abdullah Niazi, Prof it’s resident agri-journo is discussing that already, I will stick to discussing how we can work through this, and budget better when the going gets tough.
Enteris.
Working woman. Mother. Survivor. Teri maa, bhen.
community living. If we decide to take turns going to Sabzi Mandi every month and buy things for our close friends, maybe a group of three or four people, we can split the cost of the vegetables and fruits as well as petrol. We all have friends. This is not impossible. This will save us multiple trips to veg etable sellers. I am cognizant of the fact that this would mean depriving vegetable sellers of their earnings, especially those who sell their wares on pushcarts. It is a catch-22 situation isn’t it, and I suppose merits another debate. For now, I am simply tryin g to figure out how to be an organised, effi cient human being. Making one trip to the Mandi for things that can be stored seems to feel like I will have one less thing to worry about. And it will save time in the kitchen; if you’re like me and you don’t cook, it will save your cook/houseboy/housewoman time. All you need to with tomatoes is to puree and then freeze them until your next trip to the Mandi. It is of vital importance to know that it’s not merely tomatoes that can be frozen, it’s so many kitchen staples such as ginger, garlic, okra, spinach amongst many others. Okra will have to be fried first, spinach will have to be blanched. T he general rule of thumb is that anything that grows above the ground can be frozen. But this is not a cooking show so you can google all this later if you
A case of tomatoesexploding
I think a breakdown here is important to understand why I’m excited about the Mandi. An average household of four family members plus two domestic staffers will consume approximately 350 gms of tomatoes a day in their salan, this averages to about 9.8 kg a month. (I am not taking into account the number of Karahis you decide to make in a month because one such dish for four people requires approximately two kilos of tomatoes.) At Rs250 a kilo it will cost Rs2450 a month. If we’re buying from the Mandi this will cost us Rs980. Therefore, the difference in tomatoes alone is Rs1470. Of course, at this point you will bring up how much petrol will be required to go and come back from there, how expensive petrol has become and how totally stupid this idea
So then I took my grievances to my best friend who is a celebrated chef, and asked her how she is managing this in all her kitchens. And she gave me a tip that I feel is about to change my life. Once a month she will go to Sabzi Mandi (because she has to go anyway) and will buy me about 10 kilos of tomatoes at Rs100 per kilo. Yes, that is how much it’s costing there right now, if you buy larger quantities, and it is expected to drop further to Rs80.
Prices of staples such as tomatoes, onions and potatoes oscillate a lot anyway. It is a seasonal issue. But the highly productive lands that have been destroyed in Sindh will take years to recover. “The floods have wiped out the availability of fresh produce,” he said. So what do we do, I ask plaintively.
are interested.Ifthisstill doesn't make sense to you, and you think the problem will not be solved by these monthly trips let me ask you if you have heard of environmentalist extraordi naire, Tofiq Pasha Mooraj? As an independent farming professional his advice is almost sacred but people don’t seem to be listening. He believes that as a people we don't have the culture of having processed foods like canned tomatoes. “We don’t have the culture of pickling and conserving our vegetables. If we did this when they are in season and prices are low we could save so much for a time when prices are high. We are the largest producers of milk in the world but we don’t have the riwaaj of making paneer,” he told me. Along with no food processing culture, he adds that we have no storage facilities. “A farmer will have to walk away from his crop when he has a lot because he won’t get anything for it.”
“We have to work as a community. We can work and start growing in urban areas, semi-rural areas; in this way we can supplement some of the crop that’s supposed to come from farm lands. This will mean imports will be reduced, maybe not by too much. Even if it’s a 1000 kilos less, it’s still a 1000 kilos less”
We have to work as a community, he says. “We can work and start growing in urban areas, semi-rural areas; in this way we can supplement some of the crop that's supposed to come from farm lands. This will mean imports will be reduced, maybe not by too much, but so what? “Even if it's a 1000 kilos less, it's still a 1000 kilos less.”
COMMENT
Both my friend and Mooraj mentioned the green revolution in India and Sri Lanka to me. If everybody grows in their homes, it can amount to so much, they insisted. People can help their neighbours, different people can grow different things and can then barter. The problem will not be solved by freezing
Tofiq Pasha Mooraj, independent farming professional
tomatoes, (though it is great advice for now and I’m totally following through), or using yoghurt instead, or even cooking foods which don't require either. It is much bigger, and it is here to stay. Community living is the way to go, it is cheaper, it is greener and it con nects us all. One should not have to feel alone in these trying times, especially when you're hunched over your computer googling ‘to mato prices in Karachi’ to compare prices on Kravemart with those on Pandamart and even Nice store near my place, and the internet with all the ironic humour that it is capable of throws up pictures of the annual Tomatino Festival that just took place in Spain.
A
Availability of private capital for reconstruction following disaster would be sparse, particularly when immediate reallocation of capital would be towards agricultural lands as the sowing season begins. Housesin the areas which were worse hit by the disaster have little to no financial inclusion, and hence were largely funded by household’s own equity. In order to build back better, it is entirely possible to iron out issues which discouraged mortgages in the areas, which did not allow housing ownership to be more prevalent. Fixing such structural problems, and by encouraging a subsidized mortgage market, it will be possible to leverage external capital to facilitate private reconstruction. The “Mera Pakistan Mera Ghar” scheme which provided long-tailed subsidized loans for construction, and purchase of houses was largely successful in enabling a sizeable number of people to become homeowners, however, its impact was largely in the urban areas.
Utilizing the network of microfinance banks, and microf inance institutions in the affected areas, it is possible to extend micro mortgages, which can be partially subsidized by the state, and can thereby facilitate the reconstruction process. Although the credit risk would be high, but that can be hedge through availability of credit guarantees. Moreoever, as reconstruction cost in the area remains low, it will be possible for financial insti tutions to accumulate a large number of mortgages, thereby also benefiting from diversification. In a nutshell, instead of instead of injecting billions of dollars into private reconstruction, a strategy to reduce upfront capital outlay, and substituting the same with mortgages can be done to improve overall long-term economic outcomes.
Housing Reconstruction: Building Back Better
Once the water recedes, and the process of rehabilitation begins, housing will be built again over the next twelve to eighteen months. It is in that reconstruction process that it is essential that rebuilding is done in a more efficient, and effective manner, that also minimizes upfront capital outlay for house holds, that have already lost a significant portion of their wealth in the floods.
OPINION
Ammar H. Khan
tion purposes, and improved health outcomes. The opportunity is here to develop infrastructure in a manner such that earlier discrepancies can be addressed, and we can build back the most vulnerable areas of the country better.
The disaster is of biblical proportions, and the losses are still accumulating. The opportunity to reconstruct would present itself within a few weeks, and it is at that time, the policy makers and the local representatives will have to decide whether they want to build back better, or they want to stick with the status quo. The priority for the government should be to minimize capital outlay, and crowding in capital for reconstruction purposes, and a low hanging fruit here is development of a rural or semi-urban mortgage market.
Rebuilding better would need to be driven right from the top, and that will be through reconstruction of better, and more climate resilient infrastructure. Natural disasters cannot be avoided, but through better infrastructure, their impact can cer tainly be minimized. As water infrastructure, and road network is rebuilt, it will be critical that any rebuilding done adheres to best practices for climate and disaster resilience. Similar pledges were also in place following the 2010 floods, but not much changed.Itis essential that the government, or the reconstruction authority mandated for reconstruction prescribes, and encourages use of materials, and architecture which is not only suitable for the area, but is also climate, and disaster resilient. As per evidence available from household surveys, most houses did not even have operational sanitation, and drainage, while the city, or district’s sanitation was also defunct. Having in place an operational drainage system remains critical, particularly for sanita
The writer is an macroeconomistindependent and energy analyst.
22 COMMENT
The areas worst affected by the floods are also those which have long stretches of power breakdowns. Building back better may also entail utilizing rooftop solar for power generation, to move away from the grid. The government, and relevant regulators can also experiment with micro-grids on a district, or union council level basis, such that households can generate electricity from alternate sources, while backup power can be stored through the micro-grid, benefiting from economies of scale.
s of latest estimates more than 1.7 million houses have either been partially or completely destroyed by the great floods of 2022, resulting in a loss of more than US$ 2.6 billion to private households, wiping out substantial wealth of more than 1.7 million households. A wealth shock coupled with income shock given losses in agricultural output, and livestock, the human and sustenance cost of the disaster is much higher than what can truly be captured by any estimate.
Atyab resignation
The official announcement was made as past announcements have also been made, in a three-four sentence long email sent to company employees by Jazz CEO Aamir Ibrahim, who has survived all nine of the CEOs that have run the show at JazzCash over the past seven years. So what is the story behind the alarming turnover rate of CEOs at JazzCash, and more importantly how has it been affecting business?
would be a shake up if it were unexpected. By now, the changing of a CEO is more routine than it is earth-shattering news at the offices of Pakistan’s largest mobile wallet JazzCash. Over the past seven years, the fintech arm of Jazz has seen nine CEOs come and go at a re sounding rate of a new CEO every nine months.
served as JazzCash CEO for only four months and reportedly resigned citing personal reasons when he was in Japan. Before Erwan, the company’s head of Digital Financial Services which ran the JazzCash project, Nadeem Sheikh also left after serving a short duration.
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Atyab resigned over personal reasons, high-ranking officials say that he was asked to resign and the run-up to the resigna
AsdevoursJazzCashanotherCEO, where will they go next?
its tales and an underhanded blame game has been played.
So
That makes Atyab’s departure the third in quick succession in recent time, and that has raised more than a few eyebrows given the mysterious circumstances in which the resignation has gone down. While the company has become quite used to an interim CEO coming in and taking the reins while the bosses at the Jazz head office determine who will come in next, Atiyab’s exit from the company seems to have been in less than ideal circumstances. After all Atiyab was supposed to have been brought in to fix things at JazzCash, and with a CV that boasts time as the former head of MasterCard with a background in digital banking at HBL, questions are being raised over whether it was Atiyab that did not fit into the culture at JazzCash or whether JazzCash is simply not a conducive environment for a CEO. In the wake of the exit, the rumour mill has churned
By Ahtasam Ahmad & Taimoor Hassan
The third CEO in the last three years has stepped down risking the financial service giant’s growth ambitions
The latest in the list of CEOs passing through the conveyor belt that is the top position at JazzCash is Atyab Tahir, who decided to step down from his position with immediate effect less than six months after his appointment. He has been succeeded in an acting capacity by JazzCash’s CFO Murtaza Wahab, will be assuming charge of one of Pakistan’s premium fintech companies and one of Veon’s most ambitious business ventures for the second time as acting CEO.
what happened? While the official version from Jazz maintains that
It
In fact, the situation is strange enough that as acting CEO, Wahab already has more time in the CEO’s chair than Atyab or the CEO before him. Wahab has previously served as an interim CEO of JazzCash for 8 months follow ing the departure of Erwan Gelebart. Erwan
Document 2020
increase. This was supported by the continued expansion of the retail presence, reaching some 119,000 active agents (+44.9% YoY) and almost 157,000 active merchants (up 2.1 times YoY).”
Therefore, a valuation was completed in December 2020 by the Bank of America, which VEON appointed while ADG appointed City Bank. As a part of the process, both banks esti mated the value of JazzCash to be close to PKR 40 billion. This is way below the targeted PKR 220 billion valuation by 2023 as per Veon’s strategic direction given in 2020.
Further, the same valuation report stat ed, “Given the negative EBITDA of JazzCash, and the lack of long term JazzCash specific proceeds, the business was valued separately.” What doesn’t help either is the fact that a significant number of wallets are opened and kept active with the throughput and charge back strategy of Jazz. It essentially means that free mobile top-ups are the only transactions passing through many of these wallets which significantly exaggerates the gross transaction value. Subsequently, artificially increasing the valuation.
healthy valuation for JazzCash and sell it out for a premium. Similar to what Telenor did with Easypasia.
hile cultural conflict is cited as the reason for the exit of the outgoing CEO of JazzCash, as per sources, a pertinent factor to consider for the high management turnover for the financial services giant are aggressive growth targets.
To understand why the growth targets might overwhelm anybody, it is necessary to understand where JazzCash stands at the moment. As per the latest financial results announced by VEON for June 2022, “ Jazz Cash reached 16.2 million Monthly Active User (MAU) (+23.2% YoY), and revenues grew by 58.9% YoY. LTM Gross Transaction Value was PKR 3.7 trillion, with a 29.3% YoY
It is no secret that Jazz is betting on its Mobile Financial Services (MFS) wing to turn things around in an otherwise stagnant telecom market. However, this optimism has translated into a strategy that is based on a highly ambitious and, at times, unrealis tic growth strategy. (Read more about it in Profit’s article: JazzCash, Mobilink’s favourite child?)
Sources told Profit that it seemed like Atyab had a bone to pick with almost everyone in Jazz’s senior management. As time went by, it became extremely difficult for those involved with JazzCash’s operations to work with the new CEO as he was considered to be a “Cultural Misfit”. The disagreements led to full-blown arguments most notably with Jazz’s HR department’s personnel, ADC and Channel head and, Product and Strategy head who left citing disagreements with Atyab as the reason.
growthaggressiveJazzCash’stargets
On top of it, amid the pandemic, the State Bank of Pakistan (SBP) issued circular instructing banks to abolish Interbank Fund Transfer (IBFT) charges to account holders who could no longer go to bank branches or branchless banking agents because of the pandemic restrictions to make these transfers. Slashing these IBFT charges promoted digital payments but took away the primary source of revenue for branchless banking operations such asJazzCashJazzCash.has posted an overall loss for the last two years and for the first quarter of 2022, the loss from branchless banking stood at PKR 562 million.
The negative outlook on the profitability front makes things more complicated for the person who is spearheading the MFS operations. Especially when one considers the fact that the ultimate goal of Veon is to achieve a
FINANCIAL TECHNOLOGY
Source: DFS Rollout Plan in VEON’s 2020 strategy
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While Jazz might soon be in the market searching for another CEO to head its digital finance ambitions, it may just rethink its strategy this time around, as the organisation desperately seeks someone who can stick by and execute what its board has envisioned. n
Source: VEON (Jazz) Strategy
documentSource:Mobilink Bank Financial Statements 2021
This, coupled with the fact that there was no significant progress on the operational front, led to Jazz’s executive management officially inquiring about the matter which ultimately led to Atyab’s resignation. Profit reached out to Jazz for a comment, the Telco maintained, “Atyab Tahir has resigned from his position due to personal reasons. We wish him success in his future endeavours.”
If we compare these results to the targets set by VEON’s management, it is quite evident that what the heads are being asked to achieve is extremely difficult. Existing MAUs are around 16 million while the targeted figure is around 36 million by the end of next year. It is highly unlikely that JazzCash can achieve this figure.
Yet, the goal looks far from materialising. VEON, Jazz’s parent company, as part of its ac quisition of Warid from the Abu Dhabi Group (ADG) on July 1, 2016, entered into an agreement with the group. According to the terms of this agreement, ADG would have a right, upon the fourth anniversary of the acquisition, to sell their remaining 15% stake in the combined business (now Jazz, formerly Warid) to VEON at the then-established fair value.
tion was, of course, not a friendly one. It was a mix of a tussle with the higher management of Jazz over business plan execution, heated exchanges, and accusations of bad behaviour.
It sounds great on paper, austerity to show the government is ready to take tough economic decisions to help the economy get on track. Even if this means you’ll have to forgo your expensive doritos, fancy makeup and perfume, and maybe just maybe tea! Okay, before you start to panic, there is no ban on tea… yet.
Contrary to popular belief and the way supermarkets are stocked in high end neigh borhoods, Pakistan doesn’t necessarily import an obscene amount of luxury items. Sugars and sugar confectionery make up 0.33%; while cocoa and cocoa preparation makes up 0.07%.
So can we really live within our means?
27IMPORTS
Are our imports really that luxurious?
here’s a lot in the media about import curtailment, curbing the import of luxury products, and choosing local products instead of “luxury”. To look at the import compensation and the breakup, we’ve taken import payments by all commodities released by the State Bank of Pakistan (SBP) for the period of July to June in FY 22.
If we look at Pakistan’s import composition based on SBP yearly statistics, we can see that 29.46% of all imports are mineral products; 20.19% alone are mineral fuels, oils,
and their distillation products. This is basically petrol and diesel that we import. There is no real local alterna tive to this until the car that runs on water or the engine that runs on sugar takes over. Pakistan has to buy fuel.
No don’tMiftah,askusto live within our means
Another major compo nent of our import bill is made up of machinery and mechanical appliances. This accounts for 13.04%, another component that cannot be ignored. You cannot simply expect the local industry to start produc ing its own machinery and appliances out of the blue. This import substitution takes years of setting up, transferring knowledge, and reaching5.33%scale.of all import payments are made to pay for a vegetable product which includes edible vegetables, fruits and nuts, spices, cereal, products of the milling industry, oil seeds, and vegetable planting materials. Animal or vegetable fat makes up 4.89% of all imports.
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7.99% of imports are under the textile and textile articles category. This primarily consists of cotton making 4.09% of the total imports. Silk makes up 0.01% whereas special woven fabrics like tufted textile fabrics and laces make 0.16%.
Looking at the variety at supermarkets across town, you’d be thinking we import lots and lots of beverages and spirits. However, beverages, spirits and vinegar make up around 0.01%. Cumulatively, prepared foodstuff makes up just under 1% of the country’s
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Countries, however, are not like that. They don’t have to necessarily live within their means. They can run a deficit on their current account and balance of trade. What this means is that a country can import far more than what it earns from exports and remittances.
However, this is not the first time a finance minister or a politician has given a statement to play to the crowd. Regardless, economic principles state that when prices of goods go high, their demand goes down, with the rupee in freefall, people are adjusting their shopping preferences accordingly. Some local brands have also upped their game and prod uct offerings to step in the gap in the market.
Another pertinent question that pops up is the emergence of gray markets when things are banned or curtailed. Khepiye, smuggling, and grey markets are all a by-product of bans.
inance Minister Miftah Ismail thinks he’s got a great scheme to control the depreciating rupee and bridge the current account deficit – frugality while spending to live within our means.
looking at the import composition, it seems like there is very little room for being frugal. However, with current outflow controls such as slow processing of letters of credit, closing down of open accounts for trade, and earlier restrictions on imported goods; one does wonder how bad the situation is.
In the end to answer the question, Pakistan’s means are certainly not enough to live within. With the current flood and the aftermath to deal with at hand, it only makes sense for imports to rise and maybe exports to decline. This means, Pakistan can definitely not live within its means; at least not for now. n
By Ariba Shahid
The country also imports a significant amount of base metals and articles, primarily iron and steel. These are key components for the localCarsindustries.makeup 4.23%, however, that is because the import of reconditioned cars has gone down. Despite that, components for the local automobile industry such as steel, rub ber, etc make its way into the import mix.
expenses at home is not easy, imagine what it’s like for countries! However, it is easier to stay within your means when you know you have no option but to stay in your means. That means, if you know you can’t get a loan from a friend or bank, you can’t overdraw your account, pay the minimum on your credit card, or just borrow from family or friends with no intention of paying them back; you spend only as much as you can afford to. In case you spend more, debt collectors get ugly.
imports.
Similarly, toys, games and sport equipment makes up 0.06%, furniture bedding, mattresses, lamps and lighting make up 0.16%, watches and clocks are 0.03%.
After
Budgeting
Can countries go beyond their means?
On an international level, it is a network used by financial institutions to trade currency and currency derivatives with each other. These transactions can be on behalf of third parties done through banks; however, they are primarily done for the banks themselves.Banks can choose to deal with each other directly on the interbank, which is the most important segment of the foreign exchange market. To put this in simple terms, the interbank can also be seen as a wholesale market on which currency transactions take place.
Similarly, outflows are also made through this category. Depending on the need of the market, the SBP can inject liquidity by selling foreign currency in the interbank. It can also wipe up liquidity by buying.
As a result, the interbank and open market are two different rates. In normal circumstances, the difference between the two rates is small, however, in times of volatility, the spread may grow. Sometimes, however, the interbank rate is higher than the open market rate. This is very rare but has happened.
That means if the dollar is officially being sold for Rs 223.42 in what is known as the official ‘interbank’ market, a person can walk into a currency exchange and buy a dollar for anywhere between Rs 224-25. Of course, this gives rise to a few questions. What is this ‘offi cial’ interbank rate and why do money changers charge a little on top — what is known as the ‘open market rate.’ And more importantly, what in the world is going on in Pakistan which has caused its interbank and open market rate of exchange for the dollar to rise by as much as Rs 10 in places?Before we understand the reasons for the spread, it is important to understand the func tioning of these two markets. Profit explains.
Bloomberg. This is how the interbank emerged. Since May 1999, Pakistan has been following a market-based flexible exchange rate sys tem. As a result, the interbank rate is applicable to all foreign exchange receipts and payments. This is for the private and public sectors. The ex change rate depends on the demands and supply conditions in the domestic interbank.
This means that all foreign exchange requirements, basically demand, consist of imports, services, and debt repayments. They are met by authorized dealers that form the interbank market. Because they are authorized dealers they do not need to approach the SBP to release foreign exchange for any purpose, nor do they have to surrender the foreign exchange to the SBP.All authorized dealers in the domestic interbank are allowed and free to fix their own buying and selling rates. While the SBP does not provide forward cover for exports, these dealers may choose to do so by providing forward cover for exports, imports, and other permitted transactions.Asaretail buyer, you do not have access to the interbank rates. Instead, you go to the open market for all your foreign currency needs. The open market in Pakistan, or kerb market, primarily consists of Foreign currency exchanges where individuals can go buy and sell currency.
Why is the rate different for both exchange rates?
Why is the differential so high these days?
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The growing divide between the interbank and open market
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he interbank is fed by inflows such as imports, remittances, grants, aid, do nations, foreign direct investment, and repatriation of profits. Any money that comes into the country through these official channels comes in through commercial banks for their clients. This feeds the interbank.
The open market, however, gets its inflows through remittances, travelers exchanging notes, and sometimes savers exchanging the currency they’ve held on to.
With things cooling down in the inter bank as outflows have subsided, and inflows have come in; the interbank rate is significantly lower than the open market rate. n
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29FOREX
Interbank vs open market
The demand in the open market these days is primarily driven based on making a quick buck in the foreign exchange market when the rupee depreciates. The demand is further amplified by savers dollarizing their savings. However, because travel has picked up, people are rushing to currency exchanges for foreign currency.
is a common enough experience, enough so that one expects it. If a person wants to buy dollars, they will go to a currency exchange and purchase whatever curren cy they need. Usually, if the rate at which the money changer sells the currence is a couple of rupees more than the official exchange rate.
Where does the money in interbanktheand open market come from?
It
the name suggests, the interbank market is a market between banks.
Following that currencies around the world were allowed to float freely. Voice brokers over telephones used to match buyers and sellers of forex back in those days. They were replaced by computerized systems such as Reuters and
or starters, let’s just point out a flaw in the Pakistani open market. In other countries, people only go to exchanges when they are traveling and need the other country’s currency. People don’t really buy and hoard physical notes of other currencies. Logically, the open market rate goes up when there is a demand for foreign exchange. This could be when people are traveling more, going abroad to study, or even when people are trying to dollarize their savings.
The rate in the interbank, however, has calmed down as the controls on outflows such as LC restrictions, closing down open accounts, etc have worked. As a result, demand has dampened. Moreover, in the past, the interbank struggled with processing large Letters of Credit (LCs) and lack of liquidity in the interbank to process those payments.
The interbank market developed after the Bretton Woods Agreement fell through following US President Richard Nixon’s decision to take the USA off the gold standard in 1971. The Bretton Woods Agreement stated that gold was the basis for the US Dollar and other currencies were pegged to the US dollar value.
You may be confused about remittances being an inflow in both the interbank and open market. This is because customers have an option to decide which channel to send their remittance from.
By Ariba Shahid
t first glance, you’re probably thinking that these two markets are vastly independent and do not rely on each other. That is not entirely true. For eign exchange companies deposit or surrender their net inflows to the interbank at the end of trading days. That makes them a part of the system.There is usually a differential or spread between the two rates. This is primarily because the exchange companies, while not always charging a commission, charge a margin so that they make money.
The Lahore High Court has given the province’s predatory loan sharks a notice of one week to register themselves with both the Securities and Exchange Commission of Pakistan (SECP) and the Pakistan Telecommunications Authority (PTA) as fintech apps or face time in jail.
Industry analysts say that the sharks’ business model will remain the same, barring the negligible additional annual fees they have to pay the SECP.
“No problem, we will be able to do our work the way we’ve been doing it, better even, now that we’re a respect able business sector, on the right side of the law,” said Munawwar “Mauser” Butt, a prominent Lahori loan shark, while speaking to The Dependent.
“Now, if you’ll excuse me, I have some pressing matters to attend to,” he said, referring to his recovery officers forcing the fingers of a debtor in a printing press in order to incentivise him for payment of dues.
Predatory loansharks given week’s notice to register themselves as nanolending fintech apps or go to jail
30 SATIRE
“The Punjab Prevention of Private Moneylending Act of 2007, and its previous iteration, the Abolition of Loansharking Act, can both be circumvented if the SECP is engaged,” said Advocate Saleem “Meethi Chhuri” Ahmed, lawyer of the loan sharks. “We won our case and the honourable court has given us one week’s time to do so, in which case we will get all the necessary documentation.”
