Profit E-Magazine Issue 219

By Muhamad Raafay Khan

Barely two years after taking the helm as Chairman of Mitchell’s Fruit Farms, Najam Sethi has stepped down from the position in favour of Shahzad Ghaffar. Sethi, who is the husband of MPA Jugan Mohsin whose father was the owner of Mitchell’s, will now serve as interim CEO of the publicly listed company until a permanent chief executive is appointed.

Shahzad Ghaffar is the husband of Moni Mohsin, the other daughter of the company’s founder S M Mohsin. He is the second successive son-in-law to become the chairman of

Mitchell’s.

Sethi was elected chairman of the board back in 2020 to try and turn the company around. His chairmanship had been considered a last-ditch effort by the family to fix Mitchell’s problems after an attempt to sell the company fell through. In the two years in between, Sethi did manage to make a promising start after the company narrowed its losses and increased its firepower, setting itself up for a financial recovery at the one-year mark of taking over. However, in 2022, Mitchell’s faced an annual loss of Rs 621 million — the biggest in its history.

The latest development comes only a few months after the passing of the family’s patri

arch, Syed Muhammad Mohsin. Mohsin died in July this year after bequeathing some of his shares to his son Mehdi Mohsin. Since then, his three children have also been on a buying spree. Collectively they have bought 471,600 shares at an average price of 75 per share, indi cating they may be consolidating before selling the company.

The Mitchell’s story

Mitchell’s has been in a quandary for some years. A giant in their field, the company belongs to one of the oldest business families of Pakistan. Mitchell’s was initially a fruit orchard founded by Frances Mitchell. It was

bought from him by legendary businessman Syed Maratib Ali, who was the father of Syed Babar Ali. Maratib Ali bought the fruit farms for his son-in-law Syed Muhammad Mohsin, who ran it successfully for decades.

The company enjoyed growth during this period but hit a roadblock around 2016, when it started making consecutive losses after the entrance of a number of competitors that gave it a tough time. Mitchell’s was stuck with legacy costs while the new entrants were able to use new machinery and aggressive market ing campaigns to steal away a big chunk of the market share Mitchell’s had.

In 2019, an attempt was made by the Mohsin family to sell the family business off. Up until this point, S M Mohsin’s son Mehdi Mohsin was running the show at Mitchell’s. Two bidders, Bioexyte Foods Pvt Ltd and Waves Singer Pakistan Ltd, expressed interest in the company out of which Mitchell’s selected the former as its preference. In early 2020, negotiations with Bioexyte entered their final stages.

READ MORE: Mitchell’s: Can a new management save an old company?

That is when the coronavirus pandemic hit, and Bioexyte made a 40% reduction in the initial price they were willing to pay on ac count of the impending economic slump. This was unacceptable to Mitchell’s, and the deal fell through. After this, Najam Sethi took over control of the board as chairman and brought in Naila Bhatti as CEO. Bhatti had been Sethi’s trusted right hand during his time heading the Pakistan Cricket Board.

Recent events

To many, Sethi’s takeover of the com pany was a last ditch effort after the sale fell through. In the two years he was in charge, Sethi did manage to begin the execution of a turnaround. In 2021, Mitchell’s made a profit for the first time in six years and it was expected that Sethi’s leader ship was finally going to reverse the company’s fortunes.

Come 2022, however, the field began to change dramatically. The sponsors of the company started a peculiar buying spree in the middle of the year. From May 20 to June 17, 2022, the three children of the late S M

Mohsin, Jugnu, Moni, and Mehdi Mohsin have collectively bought 471,600 shares worth a net of Rs 35,180,378 at an average price of 74-75 per share, its lowest in five years. It raises the question whether they have finally given up trying to save their late father’s company and are planning to sell the company once more? It could also mean that the sponsors are trying to signal the market to buy its shares in order to drive the share price up, and maybe then sell the company at a higher price.

According to a source in the senior man agement of Mitchell’s, the sponsors’ buyback is not a sign of the company’s sale in the future but a show of faith in the company’s strength and the bright outlook they expect after the change in top management. The sponsors decided to buy the shares directly from the market because the shares were trading at their lowest price in many years. The choice to buy back the shares directly makes sense considering a rights issue of Rs 750 million was already made in 2020 and a sponsor loan of Rs 200 mn in the last few months.

Given the sponsors’ attempt to sell off the company just two years back, it is natural to be wary of another potential sale. However, the senior source in the company says that while a few potential suitors have recently approached the management with their offers, a sale is not on the horizon any time in the near future.

In the midst of all of this, it became apparent that the initial improvement in financials was not to continue. The company posted an annual loss of Rs 621 million, the biggest loss in the history of Mitchell’s. Part of

this was due to the slump in the economy and partly a result of poor business decisions by the management, which didn’t raise its prices as high inflation and currency depreciation severely raised the company’s costs. This natu rally led to the resignation of Ms. Naila Bhatti as the CEO on Oct 30 last month.

It seems the company has learned from its recent hiring experience and will now be looking to finalise a new permanent CEO soon this month. According to our source, the new chief will be an experienced FMCG executive of a high stature in the industry and will be well-versed to lead the operations of the business.

The change in top management and huge losses raise questions about the future plans of the business. The company has delayed its AGM for FY22 by 30 days later this month and has also requested a month-long extension to make its results for the first quarter of FY23 public. However, our source in the senior management of the company comments that the first quarter results will report a slight loss, which will be followed by a profitable second quarter that will wipe out the first quarter’s loss, and highly profitable remaining quarters to make up partly for the losses of FY22.

At the time of the takeover deal on Jan uary 27, 2020, the share price was RS 344.99, a remarkable 77% jump in the stock price in over three months since the transaction was announced. Given the company’s losses over the previous few years and the peculiar buying spree of the sponsors, one can only wonder, where Mitchell’s is going. n

2,489,291 2,210,620 2,112,493 1,987,552 1,628,008 1,894,406 1,679,462 1,696,332 1,945,126 2,084,261

Profit 193,820 489,340 442,423 434,413 252,889 459,533 393,082 403,704 521,349 537,465 Profit from Operations -549,197 67,426 47,016 26,777 -268,174 31,076 45,014 74,340 158,067 204,494 Profit After Tax -621,977 10,466 -55,445 -80,006 -292,619 -30,884 -12,108 27,069 107,464 132,404 EPS -27.19 0.49 -3.05 -10.16 -37.16 -3.92 -1.54 3.44 13.65 16.81

Mitchell’s Fruit Farms Ltd Financials from

By Abdullah Niazi

Shehbaz Sharif was a busy man during his few days at Sharm ElSheikh in Egypt. The mood around the Pakistan pavilion at the recently concluded COP27 conference sponsored by the United Nations was sombre. After all, the prime minister was attending the meeting despite intense political pressure back home, where an assassination at tempt had been carried out against Imran Khan and the voices calling for fresh elections were gaining momentum.

Despite the worrying political scenario back home, Sharif will have got very little time to think about it. Since he landed in Egypt on the 6th of November all the way to his departure on the 9th, the high-powered Pakistani delegation that consisted of the prime minister, the foreign minister, and the climate change minister were on their feet.

The conference for Pakistan kicked-off with a bilateral meeting between the prime minister (PM) and the Saudi Crown Prince, Muhammad bin Salman on the sidelines followed by a number of bilateral meetings with different world leaders. The crowning moment for Pakistan’s campaign at this year’s meeting was a joint media briefing held at the Pakistan pavillion where the United Nations Secretary General, Antonio Gutteres, spoke alongside the PM. In the days that followed, Sharif deliv ered speeches pledging his support to the re cently launched Middle East Green Initiative, spoke at a working breakfast of world leaders hosted by the German chancellor, attended a reception hosted by the Egyptian government and spoke at other events and talks along with daily bilateral meetings.

For once, Pakistan was a major centre of attention at this global conference. The reason behind being in the spotlight was the impact of this year’s devastating floods that ravaged millions, destroyed crops, levelled entire villag es, displaced 33 million people, and caused an estimated $40 billion in damages all over the country.

With the extent of the damages coming during a time when the country is already at an economic crisis, the PM went to Egypt heavily pinning his hopes on the success of the conference and Pakistan’s ability to convince the world of not just its own plight and need for climate financing, but also the desperate need of other developing countries for loss and damages from the global north — essentially a demand for climate reparations.

The battle cry for climate reparations is not a new one. It has been a long established fact that the global north has overwhelmingly contributed to the current climate crisis and that the effects of it are most strongly felt by

developing countries like Pakistan. This year’s floods were a prime example of this, and as the banner at the Pakistan pavilion in Sharm El-Sheikh pointed out without mincing any words — What Goes on in Pakistan Won’t Stay in Pakistan.

What is COP27?

If countries gathering under the banner of the UN to discuss the environment sounds familiar, it is because it has happened numerous times before. COP stands for ‘Conference of the Parties’ and the ongoing summit in Glasgow is the 26th such meeting of world leaders. The conference was born in Germany in 1995, which hosted COP1. Back then, the conference was arranged on an emergency basis as it was becoming very clear that climate change was a growing problem. The understanding among the scientific community that the world was warming up rapidly and headed towards environmental and ecological disaster had already been around for decades, and this was the point at which politicians and world leaders were finally taking it seriously.

The COP1 in 1995 was in essence talks between world leaders brokered by the UN. Taking place in a world freshly emerging out of the shadow of the cold war, it seemed that perhaps the end of a bipolar world would mean it would be easier to reach consensus over how to confront the problem. The COP1 achieved the goal of reaching a general consensus that it was important to reach net-zero carbon emissions (an idea Pakistan has refused to pledge to this year). The next major development came in 1998, when COP3 took place in Japan. This resulted in the Kyoto Protocol, which legally bound countries to reduce emissions.

However, the first cracks began to appear when the biggest emission producer in the world, the United States, refused to join the Kyoto protocol. Their reasoning was that developing countries such as China were not bound to follow the protocol, despite the US and other developed nations having a far higher impact on the entire globe. After this, there was a stalemate, and all COPs after 9/11 received very little attention and climate change slid to the back of the global agenda.

It was not until COP15 in 2009 that the world’s attention was on the COP meet again, which is also when world leaders promised to provide $100 billion in climate financing to developing countries (this will become very important in the context of COP26) by the year 2020. The next big step came at COP16 in Paris in 2015, which is when major world leaders bound themselves to the Paris Climate Agreement. That was until US President Donald Trump pulled the US out of the agreement, once again leaving the biggest polluter in the world free of any consequence

or responsibility.

However, there was extra attention on COP26 because incumbent US President Biden reentered the Paris Climate Agreement and promised sweeping changes at COP26. The world was also watching because 2020 had passed, the promised $100 billion had still not been made available and financing had once again been delayed. The conference became a turning point for developing countries such as Pakistan, which came together with the common purpose of having their voices heard and opening the floor for discussion on loss and damages. While developing countries managed to get a foot in the door last year, no major progress was made. This year, however, with the floods in Pakistan capturing global attention there was a lot more on the cards and a massive opportunity at hand.

According to the Center for Global Development, developed countries are responsible for 79% of historical carbon emissions. Yet studies have shown that residents in least developed coun tries have 10 times more chances of being af fected by these climate disasters than those in wealthy countries. Further, critical views have it that it would take over a 100 years for lower income countries to attain the resiliency of developed countries. Unfortunately, the Global South is surrounded by a myriad of socio-economic and environmental factors limiting their fight against the climate crisis.

This year, the issue was front and centre like never before and Pakistan was the flagbearer. To put things into perspective, until last year Pakistan and other developing countries were demanding reparations for ei ther climate disasters to come or past ones that were a little vague. This year, Pakistan went still reeling from the effects of the flood that were clearly caused by climate change.

Why this one was crucial for Pakistan

It is not a question of financing but of governance. Just look at what you need to be spending money on. You need it for research and development. We cannot outsource thinking

Ali Sheikh, climate change expert

The biggest road-block was always going to be the conversation surrounding loss and damages, which has been on the top of the agenda this time around. That said, COP27 of course is just where consensus building happens. There is also a donor conference planned specifically to help Pakistan out and the dates for that will be announced soon

Husain, special assistant to the prime minister

In short, climate change has resulted in a gargantuan increase in the amount of monsoon rainfall that Sindh and Balochistan have seen this year. The two provinces saw the highest amount of water fall from the skies in living memory, recording 522% and 469% more than the normal downpour this year according to the met department. “Sindh has received 680.5mm of rain since July when the monsoon season actually began,” said a Met official.

“As per calculated and defined standards, Sindh normally gets 109.5mm of rain in the monsoon season. So it’s 522% higher than normal. Similarly, Balochistan receives 50mm rain on an average every monsoon, but it has so far recorded 284mm — 469% higher. The country has overall witnessed 207 times higher rainfall so far this monsoon and the season is going to last till September-end.”

The effects are devastatingly clear.

Pakistan was hit with a major wave of cli mate-change related activity that resulted in death, destruction and total annihilation in some areas. The international media attention that followed allowed Pakistan the spotlight at this year’s COP, particularly with the PM be ing asked to co-chair the conference. And given the losses Pakistan and other countries like it have had to face, it was always going to be an opportunity to bring up loss and damage.

The hotly contested issue of climate reparations, in particular the establishment of a financial mechanism for addressing the irreparable losses and damage caused by climate-induced extreme events in least developed countries, was always going to stir controversy. This was encapsulated best, per haps, by the response of the United Kingdom. Recently elected Prime Minister Rishi Sunak briefly attended the conference and reaffirmed

Britain’s commitment but remained quiet on the issue of reparations, “despite British negotiators backing a last-minute agreement to address reparations to countries suffering the worst impacts of climate change, with Pakistan leading the push for such a commitment,” according to a recent article in The Guardian. But despite the resistance from expected quarters, the conference was largely a success for Pakistan on the international stage. “Pakistan has been getting a lot of attention here, and the UN Secretary General addressing the media from our pavilion was a positive step,” claims Fahd Husain, special assistant to the PM who was also present at the conference in Egypt. “There has been a lot of interest in what Pakistan has said and we’ve emerged as a player in these conversations. We’re trying to show people that what’s happening in Pakistan won’t remain limited to our borders

Fahd

either,” he says.

“It helps of course that we have a high-powered delegation here. Whenever you have the head of a government at one of these conferences it shows that you’re serious about getting something done, and flanked by the foreign and climate change ministers both Pakistan’s are a very serious delegation. The biggest road-block was always going to be the conversation surrounding loss and damages, which has been on the top of the agenda this time around. That said, COP27 of course is just where consensus building happens. There is also a donor conference planned specifically to help Pakistan out and the dates for that will be announced soon.”

Sherry Rehman, minister for climate change

off climate change impacts. Pakistan is in the front line for advocacy and played a proactive role for highlighting climate finance. Our efforts will be focused on seeking $100 bln per year as promised in 2009 for climate finance and do the advocacy to increase the pledge three times,” adds Rehman.

Yet beyond this immediate need for rep arations, Pakistan also needs a clear agenda on what it wants to do on the climate front. There is the immediate concern of rising tempera tures, for example. According to Ali Sheikh, an expert on climate change and development, it is in the fundamental national security interest of Pakistan that global average temperatures stabilise at 1.5 degrees Celsius, since a change of 1°C has already caused serious disruptions and brought the economy to its knees. If no action is taken, Pakistan, like many other developing countries, will simply not have the residual resilience to cope with recurring climate disasters.

and more severe and predictable for example but they continue to happen every single year,” he explains.

For Pakistan, financing is necessary im mediately. “The COP27 must capital ise the adaptation fund and introduce agility and speed in countries that need to build resilience,” says Sherry Rehman, the minister for climate change. “Simplified, long-term climate financing instruments are needed to plug severe capacity deficits in the developing countries right now as the protracted periods of pipelining funds lose potency when resilience needs change faster than the speed of resource dispersion,” she said. “We need climate funds that are easy to access, predictable transfers. We must reduce the delays in funds mobilisation; the needs end up changing on the ground by the time the funds arrive.”

All in all, according to the latest report of the Post-Disaster Needs Assessment (PDNA), Pakistan needs at least $16.3 billion for postflood rehabilitation and reconstruction. The PDNA report, released by the representatives of the government and the international development institutions, calculated the cost of floods at $30.1 billion – $14.9 billion in damages and $15.2 billion in losses. “Our priority is an adaptation for long-term measures to ward

“Climate change has two key impacts. The first is to increase heat and carbon in the air. The other precipitation variability — which means changes in the trend of rainfall. In the short term, some of these conditions might even result in better yields for some of our crops but at the end of the day it will be fatal for our agriculture. We will start seeing de ficiencies in micronutrients in different crops which could result in nutritional deficiencies in the population. The private sector is already adding these nutrients to products such as rice artificially but this will only further increase the economic disparity that exists in our coun try,” he explains.

According to him, Pakistan faces a problem where even if it is given the climate financing that it is asking for, it will not know how to spend this money effectively. “It is not a question of financing but of governance. Just look at what you need to be spending money on. You need it for research and development. The losses that have been calculated are all in frastructural, but there is very little attention that has been paid to more long-term solu tions. Losses in agriculture are becoming more

“Even the mechanism we have to estimate loss and the response to it is very flawed. It is based on a top-down calculation instead of a bottom-up approach. In a top-down approach you think in dollars and in big terms, without consulting the real onground stakeholders such as farmers. Even the calculation of $30 billion in damages is infrastructural for the most part, and it has been calculated by institutions that think they will end up lending some of that amount. The UN Sec retary General made a flash appeal based on the projects they were conducting in Pakistan for what they were doing. Each agency places themselves in the centre and makes that the centre of the issue. They are looking at their own business prospects, but the dilemma is that they have all the credibility. This is the kind of study that the government of Pakistan should have been doing. We cannot outsource thinking,” he explains.

In this point, Sheikh is absolutely right. We must remember that the emissions from the developed world have impacted the developing world. However, within countries like Pakistan this impact is most strongly felt by the lowest rungs of society — in this case the farmers that have lost their homes and livelihoods. If calculations are made for infrastructure losses, how will poor Sindhi farmers that neither own the land they tilled nor have any land rights to it be compensated? How will they get their fair share when they already have loans to pay off and even the meagre makeshift roof above their heads has been taken away?

Pakistan has done well to get where it is in terms of climate financing at COP27. It would have been unfortunate if we were unable to leverage the devastation of the floods to at least get this point across. But if climate financing comes, it will be of no use if we do not begin planning an equitable and efficient way to spend it on research and development now. n

Even if we get the money, do we know how to spend it?

Simplified, long-term climate financing instruments are needed to plug severe capacity deficits in the developing countries right now as the protracted periods of pipelining funds lose potency when resilience needs change faster than the speed of resource dispersion

OPINION

Ammar H. Khan

Interest-free economy

Pakistan is no stranger to debt. It currently has a total debt of Rs 50 trillion, of which rough ly Rs 33 trillion is domestic debt denominated in Pakistani rupees, while the remainder is denominated in foreign currencies. The gov ernment continues to run recurring deficits, and rarely has there been a year in the last three decades that we have had a surplus. In-effect, our expenditures remain consistently greater than our revenues.

So how do we fund out deficits? We fund our deficits by borrowing from the market, and by paying an interest rate. The people of Pakistan are essentially depositors in banks. These banks then use those deposits to either lend to the private sector, or the public sector. During the last decade, the share of the sovereign and the public sector has significantly increased, as they now make up more than 70% of total assets of the banking system. The sovereign has essentially crowded out the private sector by following a strategy of running perceptual deficits.

If hypothetically, and magically, we do move towards an interest-free economy, how exactly will the sovereign fund its operations? One is hard pressed to find

The writer is an independent macroeconomist and energy analyst.

anyone who would be willing to lend capital to the sovereign to run its affairs at zero interest rate, or for free. It is a nice thing to have, but not something that one can have. Developed economies flirted with zero interest rate, and even negative interest rates during the last decade, but that eventually led to massive monetary expansion which led to a significant uptick in inflation across the board.

As long as we keep borrowing to run our affairs, moving towards an interest-free economy will remain a pipe dream. There is, however, a possibility that there will be an eventual conversion of all commercial banks in the country onto Islamic banks. We may see a roadmap, and even some progress as well. We may even start calling interest rates ‘profit rates’, and pretend it's all kosher. However, there remains a signifi cant shortage of assets that can be deemed shariah-compliant, which the banks can then redeploy their capital towards.

As the sovereign makes up almost 70% of all bank ing assets, it is not possible to convert all these assets into shariah-compliant assets. A pre-existing condition of a shariah-compliant asset is that it needs to be backed by some physical and tangible asset. However, most securities that are issued by the sovereign to raise debt have no physical asset underlying that instrument, other than the promise of the sov ereign that it is going to pay back whatever it has borrowed.

A transition towards an interest-free economy isn't real ly happening, especially not under the current macroeconomic circumstances. The conversations about transition are more of a populist play, or to assuage certain sections of the society. We may see some change in nomenclature, wherein how we refer to banking transactions, and spin a more shariah-compliant version of the same. However, if purely economic fundamentals are considered, it may not be possible.

Nevertheless, if we undergo massive structural reforms that result in substantial flow of funds into the banking system, and the demand for funds eliminates from the sovereign as it starts posting surpluses, we may see the market price of funds, or the interest come down close to zero. Considering how our economy has been managed in the last seven decades, and how there is more focus on populist slogans than actual economic policy making, there is little to no chance of actual structural reforms happening anytime soon.

By Daniyal Ahmad

Albert Einstein defined insanity as doing the same thing over and over again, and expecting different results. He would probably be rolling in his grave if he saw Pakistan’s innumer able attempts at trying to domestically build internal combustion engines for vehicles. However, whilst the automotive industry persists in its continued attempts to do so, two interesting things have happened this month.

Firstly, the China-Pakistan Joint Re search Centre on Earth Sciences has signed an agreement with China’s Tianqi Lithium to explore Pakistan for lithium deposits this Fri day. What is the significance of this? There’s likely lithium abound. Why is that important? Lithium is one of the key ingredients in the manufacturing of electric vehicle batteries.

What does this mean? Nothing really, because we are most likely not going to utilise it in any meaningful capacity. Why do we say this? Be cause of the second interesting thing that has happened in the industry this month.

Haval has unveiled Pakistan’s first hybrid-electric vehicle. A full 24 years after Toyota unveiled the world’s first hybrid, the Prius, in 1997. Now, kudos to Haval for achieving what no other company could in Pakistan but we have a problem. If we are just not producing hybrids, then we are not going to produce electric vehicles anytime soon. This subsequently means we are not going to produce electric batteries and are going to miss out on the next big thing globally, similar to how we missed out on the internal combustion engine entirely.

In an attempt to avert shooting ourselves in the foot, Profit is going to go ahead and sug gest we actually try to export them by utilising

the export processing zones. Remember those, anyone? Doing so would allow us to get on the bandwagon for the next big thing in the indus try globally whilst our local sector continues to live out its hybrid escapades.

Now Profit may have picked fighting words, but hear us out. Firstly, let us explain the significant and interrelatedness of the aforementioned two events.

Looking at what we are about to squander and why

Profit talked to a source at the Geolog ical Survey of Pakistan, who on the condition of being anonymous, did tell us that there were various sites that had been identified with potential lithium reserves. Profit also reached out, persistently might we add, to Ahsan Iqbal, the Federal Min-

Pakistan has a 100 GWh requirement over the next 10 years in terms of its own battery needs. If we end up importing them from China

Naveed Arshad, Associate Professor at LUMS

ister of Planning & Special Initiatives. Sadly, we could not obtain a comment. Thankfully, his rejection indicates that there may actually be fire to the smoke because a flat rejection is very easy to give. More importantly, Pakistan has been touted to have lithium reserves as far back as 2005 based on a report by the Pakistan Bureau of Statistics.

These reserves were touted to be in Chi tral and in Gilgit-Baltistan, but we just never got around to exploring them. Why? A mixture of a lack of finances and aforementioned areas being subject to an insurgency movement not too long ago. Most importantly, these areas in Pakistan are not random places on the map by any means. They, alongside Afghanistan, are part of the Kafiristan Valley. What is the importance of this? Afghanistan is projected to have the largest lithium deposits in the world. And where in Afghanistan are they? Afghani stan’s Nuristan province is touted as one potential destination. It also borders Chitral and Gilgit-Baltistan, and thus we come full circle. So let us tell you why Pakistan will squander this entirely.

Haval, Pakistan’s most technologically advanced company as of right now, chose to build a hybrid electric vehicle rather than an electric vehicle. This is very important, and very concerning. Why do we say this? Because Sazgar, Haval’s parent in Pakistan, does have access to electric vehicles through its arrangements with China’s Haval and BAIC. Yet, they chose not to. Why? “Pakistan is currently not ready for an electric car but it is ready for a hybrid electric one.” Ammar Hameed, Director at Sazgar Engineering Works, told Profit. Now why does Hameed believe that to be the case?

“Electric vehicles are not possible in Pakistan because you need to first install charging points across the country. It’s currently not feasible to own an electric car. They are good for driving within a city but you would find it hard to travel for example from Lahore to Islamabad. They are adding charging stations on the motorway but you will have a shortage of chargers as more EVs come on

the road,” Hameed told Profit. “You’ll have to wait half an hour to charge your car. Even with a supercharger, it will take 15-20 minutes to charge. Now imagine there are only two chargers on the motorway and you have four to five cars that need to be charged.” Hameed continued. He is not alone in his concerns “People do not have the assurance e.g. When I go as a consumer to buy a vehicle, I would like to go from here to Islamabad to Multan to Bahawalpur in one go,” Dr Naveed Arshad, Associate Professor at LUMS told Profit. What does this lack of assurance mean?

It means lower potential sales. What do fewer sales mean? Fewer companies want to actually launch electric vehicles. Now what is the importance of this, apart from wanting to find a more affordable alternative to the E-Tron? Lack of interest from the government, and likely subsequent governments to come. Profit understands that this is a sweeping statement so, therefore, let’s contextualise it by explain ing how the State approaches industrial policy.

So why don’t we have internal combustion engines? “Engines are made at a certain volume based on techno financial feasibility and not a wish list. If a car has a volume of 5,000 then making an engine for it is not feasi ble,” Asim Ayaz, General Manager of Policy at the Engineering Development Board, explained to Profit. Seems simple, right? Well, this applies to electric vehicles, and more importantly the batteries in them as well. “Electric batteries cannot be made from day one. You will need to manufacture electric vehicles first. Once production for them starts, and you have an established market for them then you will see batteries and other components being built here,” Ayaz continued. Do you see how all of this tied together, and why it is concerning? Let’s up the ante and make it scarier.

It is unfair to criticise Sazgar for doing what they did, rather than what they could have done because of how new they are to the market. They too need some pre-established volume to take a plunge on electric vehicles. What about placing our bets on the estab

lished triad of Toyota-Honda-Suzuki? That is a very bad idea, and it also explains how bad the situation is.

“All three of them are the furthest behind in the electric vehicle race. Toyota does not have an electric vehicle to offer except in Chi na. Honda does not have an electric vehicle to offer except in China and one model in Europe that they have just introduced. Suzuki does not have an electric vehicle at all,” Naveed told Profit. So the gist of the matter is, companies that have the volume to potentially make batteries do not have the technology, and the ones that have the technology do not have the volume to make it feasible.

In this game of solving the chicken and egg problem, Pakistan will squander its lithi um. Why, you ask? Let us explain. Electric vehicle batteries are a mix of base metals such as aluminium, copper, and iron, precious metals such as cobalt, nickel and manganese, finally and elements such as graphite and lithium. Now where Pakistan has not had lithium, it has had all other elements. Firstly, disclaimer, for whatever reason, there is no one database for all of Pakistan’s mineral reserves. However, the State Bank of Pakistan does track the raw materials that Pakistan exports. Interestingly we export aluminium, copper, iron, cobalt, nickel, manganese, and graphite. Pakistan has exported all aforementioned minerals in some capacity between FY 2016 and FY 2021.

We recognise that exporting minerals does not necessarily equate to total available reserves. However, if a material is being exported, then there is a reserve of it. It is also likely that this reserve might be very large because why else would you export something if you did not have it in amounts exceeding its domestic requirement? That too in a country with chronic balance of payment deficits?

Now, on the chance that we have no lithium reserves, Pakistan has had enough of a cocktail of minerals to actually build electric vehicle batteries. We had to just import lithium, and we somehow managed to not draft an agreement with the world’s largest source of it

If we repeat what we did with engines with batteries then we will be in the same situation in five years whereby the cars will be manufactured here and the batteries will be imported.

then we will be adding a battery import bill to complement our oil import bill

Dr.

The market is huge. There is global demand for this and a global shortfall. The shortfall is so tremendous that no one country can fulfil demand so this has to be a global effort. When there is a global effort, then that automatically means a — blessing in disguise for countries like Pakistan where the cost of production is low

which just so happens to be our cash-strapped neighbour. Do you see why Profit is concerned? Our obsession with the domestic manufacturing centred upon the local market is basically unrequited love. What a therapist would refer to as Stockholm Syndrome, Pakistani decision makers have forever, whether consciously or unconsciously, referred to as our localisation and industrial policies.

The question that now begs answering, and rightfully so, is can we even make an electric vehicle battery that the world will want to buy from us? Particularly given that we have, until now, done a very good job at highlighting our lack of ability for industrial policy. And

how exactly would Pakistan be able to export a product without selling it to the domestic market? We’ll get to all of this. But first, let’s look at what we will be missing out on if we continue with our current trajectory.

What is the size of the pie?

The size of the pie that we are not looking at actively forsaking to be precise.

Global demand for electric vehicle (EV) batteries will increase 30% by

2030, whereas the global value chain will increase 10 times to reach $410 billion over the same period. Furthermore, the number of electric cars on the world’s roads by the end of 2021 was about 16.5 million. This number is set to increase manifold to 350 million electric vehicles by 2030. In contrast, Pakistan has next to nothing.

To be precise we had almost 2,000 all-electric passenger cars in August 2021. Future growth is likely to not be as rapid as the global average as the government has deemed it necessary to stamp duties on electric vehicles to curb their import. This is on top of the aforementioned attitude that automo tive companies already have. How much could Pakistan’s market potentially grow to? Well, until August 2021, Pakistan had a total of four million passenger cars. That is all cars on the road.

Furthermore, on the topic of just exports. India and China, our neighbours, are also projected to be key consumers of electric vehicles. How much will our neighbours be consuming? There’s no of ficially agreed upon metric yet. However, Ghias Khan,Chief Executive Officer of Engro Corporation, puts the number at 50% of all global vehicles.

“The market is huge. There is global demand for this and a global shortfall. The shortfall is so tremendous that no one country can fulfil demand so this has to be a global effort. When there is a global effort, then that automatically means a — blessing in disguise for coun tries like Pakistan where the cost of pro duction is low,” Sohaib Chaudhry, Group Head Innovation at Daewoo Battery, told Profit. He added that this will be a very lucrative business in the next 10 years. We should probably manufacture them and export, right? Now Profit will hammer along this point but actually manufacturing and exporting them is eas ier said than done.

“The challenge is that battery manufacturers in Pakistan are focused

Sohaib Chaudhry, Group Head Innovation at Daewoo Battery

If you are importing inputs to export finished goods then why not? There will be some level of value addition if the product is being exported. If you import something worth Rs 8 then you will sell it for Rs 10, at least, if you want to export it. Right?

Asim Ayaz, General Manager of Policy at the Engineering Development Board

on lead-acid batteries: The ones in used cars and UPS’. They are not suitable for electric mobility and for long duration applications. Technologies like lithium-ion and other chemistries of lithium are needed for electric mobility. That manufacturing base does not exist in Pakistan,” Dr. Arshad told Profit. So, can we make them then?

cells depending upon the type you need, for two, three or four wheelers, and then you can assemble the battery packs in Paki stan,” Chaudhry told Profit. Now Chaudhry mentions both the export and local market. This is important. Why? Because that is how Pakistan will enter based on current technical capabilities. Unless Pakistan manages to leap frog its contemporaries in the next few years, it will almost always enter this particular stage in the sector whenever it does decide to take the plunge. This is also where we will see history repeat itself if it opts for its current practices rather than go for exports.

tremely small so you will have to go on a larger volume and you cannot achieve that until you engage in value addition with the battery. It’s a chicken and egg problem.” Arshad continued.

Maybe. Firstly, there are different kinds of EV batteries. Layers to be more precise. “EV battery manufacturing is a three tier process. In the first tier you are manufacturing special materials required for the battery, in the second tier you are assembling the battery cells, and in the third tier you are assembling the battery packs.” Chaudhry told Profit. What is the relevance of this?

“The lowest tier is a low-hanging fruit. You can utilise it for both exports and the local market. You can import the EV

What will happen whenever Pakistani companies decide to enter the electric vehicle battery industry? They will be in a race to the bottom in terms of their margins and the prices they charge.

“The margins will be very low. The intellectual property (IP) with the batteries is mostly on the software side. I would say 40-50% of the battery’s IP is the software.” Arshad told Profit when asked about the viability of companies establishing assembly plants in Pakistan. “The margins will be ex-

So, what is the software that’s been mentioned? It adds to the value of the prod uct, but do we need it? And if we do, can we make it? “Lithium-ion batteries are all software controlled. They have sophisticated softwares as well as power electronics which control the battery. The problem is that most of the companies do not have the expertise to develop that kind of a battery management solution or power electronics. That is why they are always dependent on international companies for licensing or manufacturing,” stated Arshad.

However, continued abstinence from the sector in any meaningful capacity also reduces the likelihood of ancillary industries being built to support the main task.

“The ecosystem or technology for this ecosystem is mostly centred in Germany, Chi na, and some other European countries. You will have to import the machinery and every thing from there.” Chaudhry explained. Now abstinence may bring down the cost of these inputs in the long-run as they mature and their international prices drop. However, as of right now there are no examples of Pakistan leap frogging ahead of countries in different sectors by just waiting on for a sector to mature so that the imported inputs fall in price. Our best performing sector actually tells us the opposite story.

“Look at the scale of our textile industry. It’s our biggest exporter. It operates with state of the art ma chinery. Brand new, all of it,” said Chaudhry. Furthermore, it’s not like these imported inputs cannot not be made more affordable for companies.

So, is there a way currently available to companies that might want to set up shop? According to Ayaz, yes there is “We have export processing zones. Anyone can set up a factory to export products and all the inputs that need

Can we actually make something to export?

Fahad Zaheer, Head of Marketing at Osaka Battery

to be imported will be duty free.” Ayaz’s statement is in reference to Rule 14 of the Export Processing Rules (1981) which grants duty exemptions for imports from abroad and from domestic companies outside of the Zone.

Until Pakistan manages to find a way to develop the requisite technical capability for the advanced software and either domestically create the ancillary ecosystem or import the infrastructure affordably, it will always exclusively have to go for volume. The export processing zones assist with the volume particularly keeping the aforementioned disparity in current and future growth between the international and domestic market in mind. Catering to a domestic to largely pull all of this off in the future will be a Herculean challenge, that is only made worse by looking at the industry’s track record.

That is not to say that this disparity is always harmful. Whereas looking at the car industry does nothing but make one despair, other sectors in the economy might actually benefit from this endeavour.

Killing two birds with one slightly split stone

It is nearly impossible to completely separate the domestic and export markets of a product for one another. There will be interaction at some level. Pakistan serendipitously finds itself in an interesting position. For whichever of the aforementioned reasons, the domestic car industry does not have an appetite for electric mobility. Howev er, that’s not to say other sectors feel similarly. Which sectors are we talking about?

“There are two spaces in the domestic market. Telecom towers, and the two- and three-wheel automotive segment,” stated Chaudhry. In regards to the former, “They are already running on lead-acid but some have switched to secondhand lithium-ion batteries for backup storage. It’s like the generators that are already in the towers.” said Chaudhry. Whereas in regards to the latter, “the two-

and three-wheeler market will become quite developed in four to five years time. A few odd manufacturers in the EV space in Pakistan do exist, and there’s even one to two big Chinese companies. The two- and three-wheeler mar ket combined with the telecom sector has the potential to create demand for up to five gigawatt per hour (GWh),” continued Chaudhry.

Sticking to just the two- and three-wheeler market, “the electric three-wheeler market is the most ripe market right. You can potentially convert a large proportion of the traditional three-wheelers to electric in a short span of time.” Arshad told Profit. “The challenge in the two-wheeler market is that almost 80% of two-wheelers are either CD-70s or replicas of it. That in itself is a problem because their price point is so low that you cannot offer a lithium-ion battery. The solution is that they may need to have different business models. Maybe, out of two wheelers, we can prioritise the commercial two wheel ers first and maybe worry about the private two wheelers when the battery costs go down or we develop some new business model for supporting that. Commercial two wheelers is somewhere we can start and slowly and gradually it will have some inroads into the private two wheeler market as well.” Arshad continued. Now what are the benefits of these sectors being operational at the same time as the batteries for cars are being exported? Economies of scale.

“The technology at the cellular level is the same. The only thing that changes is the battery packs assembly. Cars need bigger packs. For bikes and rickshaws you need smaller packs. But the features are the same. So, basically with a slight modification in the existing setup, you can in the future also install packs for cars.”Chaudhry told Profit. Pakistan as a whole would benefit from allowing these spillovers to take place as they will largely be positive and bring down the cost of production. Any other benefits? Reduced moral hazard.

Once these two industries are

The biggest challenge in the electric vehicle battery market is that when you try to sell on the international market, customers enquire about our domestic operations. They ask what is the scale at which we operate in our respective domestic market

sufficiently jolted, other potential sectors could also spring up. “In the next few years, you’ll see that the battery has other uses for example, in solar technology, grid storage, grid-free living, off-grid electrification. Storage will play a major role in all of these so it has uses beyond just electric vehicles.” Arshad tells Profit

“The biggest challenge in the electric vehicle battery market is that when you try to sell on the international market, customers enquire about our domestic operations. They ask what is the scale at which we operate in our respective domestic market,” said Fahad Zaheer, Head of Marketing at Osaka Battery.

“If we export a product without having any local experience in it or without a local portfolio, then international customers will be hesitant in buying. After-sales is a significant element to the success of this. International customers would like/expect the assurance that they can receive a replacement battery or support from the company if the battery does not perform well. The easiest way to allay their fears is for a company to highlight their domestic portfolio, which demonstrates how the product will perform internationally based on domestic results,” Zaheer continued.

If you can have bakery owners become real estate and furniture tycoons then it is likely that whichever of our battery companies to set up as exporters will also be catering to these particular domestic markets. Operating in both provides the requisite domestic portfolio to reduce the search cost and hesitancy for eign customers may have. Who knew the seth model was so good at reducing moral hazard?

Pakistan’s current inability to double down due to financial limitations actually benefits us even. “Lithium-ion is an evolving technology. As soon as you start manufacturing a type of battery, maybe another slightly different technology evolves, and then you may have to change in your lines or whatever. So that is a challenge,” Arshad told Profit

There’s actually three different kinds of batteries as well. “There are three designs for batteries: cylindrical, prismatic, and pouch. Tesla uses cylindrical batteries, whereas Chi na’s BYD uses prismatic batteries. Selecting which battery design you want to manufacture is a science on its own.” Chaudhry explained to Profit. Now Chaudhry and Arshad’s statements might actually be advantageous to Pakistan.

Whichever company that does set up shop is unlikely to just pick one battery standard as it heightens their already very high-risk profile, simply due to operating in Pakistan. Therefore, slowly figuring out how we go about this and dipping our hands into as many pots as possible might actually lead Pakistan to picking the winning horse. Such a scenario would avoid ridiculous sunk costs for

any company as well.

So, how do we achieve all of this in reality?

What will it take to get this off the ground? “W

e need an EV policy framework for three areas: a policy for manufacturing two- and three-wheel electric vehicles, a policy for bat tery storage, and one for charging infrastructure. These are all interconnected. India has made three separate policies for all three, and we need to follow suit. We need one specific government department to draft it and offer a one-window solution,” Chaudhry said.

Is that all? Sadly not.

This may jolt the domestic market but the government would still need a bespoke policy to somehow translate domestic gains into a positive spillover for exports. What complementary policies can it enact? “The first thing that is required is a framework in which you have investors because you have a lot of money involved. It’s a kind of technology transfer, and therefore, you need international partners.” Chaudhry told Profit. “China constitutes so much demand that you won’t be able to execute it without taking a Chinese partner on-board,” he continued. However, as with the theme of this piece, it is easier said than done. “For larger companies, Pakistan is a low priori ty destination or less priority. They say we will go there after four to five years,” stated Arshad.

Now as much hate as the automotive companies get in Pakistan, the government is not really much better. Pakistan’s export processing zones for example, have not really taken off. The State Bank has made a report on its failings, however, that is beyond the scope of this article. Similarly, electric mobility is a key aspect of the Auto Industry Development and Export Policy 2021-26. However, all we’ve seen till now is subsequent government’s flip flopping between the duties levied on import ed electric vehicles.

What ought to be the government’s role

then? “The government has to take a major role. There have to be government-to-gov ernment agreements which at least ensure a supply chain of lithium cells and other byproducts. These are needed to establish the lithium-ion battery manufacturing industry in Pakistan.” Arshad told Profit. There also has to be less ambiguity as to whether a policy will hold beyond the tenure of the government that drafts it.

“The government’s policies keep changing. Before one policy can be implemented, another change or a policy is already on its way. That’s a very tricky situation for an investor who is investing in the technology and the R&D,” said Arshad. “If we have decided that we want to go into electric vehicles then we have to commit to it. Irrespective of the changes in the government or the bureaucracy, we have to maintain this stance. The second there are too many cooks to make this meal it will spoil. An investor will not invest if the government itself is not clear about what it wants to achieve from a policy,” he added.

Assuming all relevant decision makers made this a bi-partisan commitment, would it work? The more important question, however, is what happens if we don’t try at all?

What happens if none of this manifests?

“B

attery technology is evolving so if we become part of that battery value chain right now, we’ll have a chance to be part of the global value chain,” Arshad explained. “We are still thinking about it, whereas the world is moving in this direction with great speed. There’s al ready $500-600 billion worth of investment in the pipeline.” said Chaudhry. So a lot of money is on the table that we are potentially forsak ing. So much forex to artificially prop our currency and other bad decisions. Hopefully that alone entices the government to look into it.

“If we repeat what we did with engines with batteries then we will be in the same situation in five years whereby the cars will be manufactured here and the batteries will be

Pakistan is currently not ready for an electric car but it is ready for a hybrid electric one

Ammar Hameed, Director at Sazgar Engineering Works

imported.” Arshad stated, adding “Pakistan has a 100 GWh requirement over the next 10 years in terms of its own battery needs. If we end up importing them from China then we will be adding a battery import bill to complement our oil import bill.”

There’s really no reason to not ex periment, at least. Chapter 3 of the Export Processing Zone Authority Ordinance levies duties on products being sold in the domestic market by companies based within the zone. Similarly, Rule 5(2) of the Export Process ing Rules (1981) disallows industries that compete with domestic exporters to operate in the Zone. These two in-effects provide the safeguard that the domestic automotive industry needs from this entire experiment. Furthermore, Rule 14 allows companies to earn rebates when they sell products to companies within the zone. This provides the opportune moment for our seth-based companies to set up shop inside and outside the zones and actually create synergies whilst catering to the domestic and export markets.

Furthemore, quardenning off the two markets in this way provides current auto motive incumbents sufficient time to live out their hybrid vehicle dream. It also simulta neously provides them the reassurance that they will have access to some form of electric vehicle infrastructure when they do decide to pull the plug as well.

Finally, if nothing else, not doing this will be a double whammy for Pakistan. Look ing at the State Bank’s export data, Pakistan has earnt Rs15 trillion from FY 2016–21 through battery related exports. On average Pakistan earnt Rs1.3 trillion per year in this time period, with the earnings increasing on average year-on-year. However, all of this is also about to come tumbling down very soon. Why? Well, this goes back to our current battery infrastructure being based on lead-acid technologies. “Lead-acid technology will eventually become outdated. It will be phased out globally, albeit at a slower rate in Pakistan,” Chaudhry said.

We import some of the inputs needed to build, so what is going to happen when we will no longer be able to export them? More balance of payment issues. The writing is on the wall already and in this week’s magazine edition.

The long-term prospects are not as bleak as one would imagine. Firstly, the only puzzle missing in Pakistan’s mineral jenga is lithium. In the situation that the reserves are not significant at all, it is fine. They just have enough amounts to act as a catalyst for all of this. Whereas, if they do not then Pakistan can just import them from Afghanistan and benefit from the sheer proximity to the reserves. Peshawar-Kabul motorway ought to ring a bell

here.

Secondly, the macroeconomists amongst us would raise the question, rightfully so, whether Pakistan’s economy could actually support such large scale imports. This is particularly important given our current forex conservation measures include the aforementioned CKD conundrum, and also previously included outright bans on imported vehicles. Well, Profit sought to answer this as well.

“If you are importing inputs to export finished goods then why not? There will be some level of value addition if the product is being exported,” Ayaz told Profit when asked whether our balance of payments could

support such an endeavour. “If you import something worth Rs8 then you will sell it for Rs10, at least, if you want to export it. Right?” Thus, the endeavour can be viable if it’s solely export oriented.

What are we left with then? “I think we are just waiting for one or two success stories. If that happens, I think many of the companies will be jumping on it,” Arshad stated. The en tire situation is akin to a game of jenga where everything has to be carefully built piece by piece. The only thing is if it is not built then we are going to have much of the same industrial problems we already have, but for much much longer. n

From no potatoes to too many

By Abdullah Niazi

At the British library in London, tucked away in their vast collection is the Nimatnama — The Book of Delights. This incredible manuscript holds within it a wealth of recipes from the court of Sultan Ghiyas al-Din Khilji, the 15th century ruler of the Malwa empire which had seceded from the Delhi Sultanate.

By all accounts, the book is a fascinating exploration of the cuisine of its time, detailing in meticulously written Naskh script the recipes and cooking techniques that went behind some of the Sultan’s favourite dishes. It is a thoroughly gluttonous book. It provides very specific instructions to prepare mouth-watering dishes featuring quail, partridge, mutton, all cooked in generous amounts of ghee and flavoured to the teeth with cardamoms, cloves, coriander, fennel, cinnamon, cassia, cumin and fenugreek. Yet, perhaps one of the most fascinating parts of the entire book are the eight different recipes it provides for samosa — none of which feature potatoes in any way, shape, or form.

The case of the missing aloos in the Nimatnama has been documented, discussed, and dissected before this. Today, the first thing you think of when a samosa is mentioned are potatoes. Yet this lumpy, brown, root that is an incredibly common part of pantries all over the subcontinent is neither native to this land nor has it been around for too long. The first potatoes were brought to India from Peru by Dutch settlers in the late 17th century and planted along the Malabar coast. However, it would not be until the late 18th century, when the British would promote the growth of potatoes all over the subcontinent, that they would quickly assimilate into Indian cuisine and become a vital if oft-ignored hero of many dishes.

So think, for a moment, about this humble vegetable. Once the sole property of native Peruvians, its journey across the New World to Europe and then Asia beyond it has in only a couple of centuries turned it into the fifth most important crop in the world after wheat, corn, rice, and sugarcane. Easily grown, versatile, and, most importantly, delicious, good potato crops have

One of Pakistan’s mightiest crops, the potato has suffered from overproduction and lack of government attention

managed to feed entire nations, while bad har vests have led to famine, starvation, and death. So what is the state of potatoes in Pakistan?

Largely, they have thrived. Potatoes are not only a major caloric input in our national diet, but a major component of the snacks industry. Yet, while the crop itself has thrived, governments have often been left unprepared and red-faced, not being able to deal with over production and unhappy farmers. But what more can be done, and exactly how vital is the potato crop for Pakistan?

Humble origins

In 1947, potato cultivation in Pakistan was restricted to a few thousand hectares and total annual output was less than 30,000 tonnes. Most of the potato plantations that the British set-up during their time ruling the subcontinent were outside of the lands that became Pakistan. Yet by the time of parti tion, potatoes had become a common enough crop that their cultivation immediately saw an uptake given the demand. According to a 2020 report of the planning commission, in the decades since independence, the potato has become the country's fastest growing staple food crop as strong gains in cultivated area and average yields have been achieved.

There is no real secret to this success. Potatoes are an incredible vegetable that grow in a vast variety of conditions and soils, and are more than receptive to Pakistani condi tions. In fact, in Pakistan the average yield per hectare is 12 times the world average. The agricultural statistics of 2017 show that potatoes are grown on 177.8 thousand hectares producing a total of roughly 3.8 million tonnes with an average per hectare yield of 22.5 tonnes, which is about 12 times higher than

Nothing to do with potatoes, but a recipe from the Nimatnama

Another recipe for the method of saffron meat: wash the meat well and, having put sweet-smelling ghee into a cooking pot, put the meat into it. When the ghee is hot, flavour it with saffron, rosewater and camphor. Mix the meat with the saffron to flavour it and when it has become well-marinated, add a quantity of water. Chop cardamoms, cloves, coriander, fennel, cinnamon, cassia, cumin and fenugreek, tie them up in muslin and put them with the meat. Cook almonds, pine kernels, pistachios, and raisins in tamarind syrup and add them to the meat. Put in rosewater, camphor, musk and ambergris and serve it. By the same method, cook partridge, quail, chicken and pigeon.

the world average. The value of the production is worth $483 million.

The star of the show has long been Punjab, which produces 93.6%, followed by Khyber Pakhtunkhwa (5.17%), Balochistan (1%) and Sindh (0.33%). Potato consumption in Pakistan is showing an upward trend, now annual per capita intake is over 15 kg, up from around 10 kg a decade earlier. Over the years, despite not being historically rooted in the region, potatoes have become one of the prin cipal cash crops of Pakistani farmers and the primary exportable horticulture commodities from the country. It is the fourth most significant crop in terms of bulk production, and one of the very rare cases in which Pakistan is not just self-sufficient for domestic use and seed development, but also an exporter.

Exports and local use

Perhaps one of the biggest reasons behind this is that the snacks market in Pakistan relies heavily on local po tatoes to make their products cheap

and accessible. The processed potato market of the country mainly consists of four major products: Potato chips, french fries, potato flakes/powder and other processed products such as dehydrated chips, starch and flour.

The biggest player out of these is the potato chip industry by a landslide. Potato chips currently constitute 85% of the snacks business. The impact can be measured from the fact that the utilisation of raw materials by the potato processing industry in 2014 was about 40,000 tonnes, which is hardly 1% of the overall total production. During 2017, about 214,000 tonnes of potatoes were processed by processing industries which is about 6.3% of total produce and out of which a major share of more than 70% was because of Pepsico, which produces products such as Lays potato chips.

Meanwhile, surplus potatoes are exported to the UAE, Malaysia, Afghanistan, Sri Lanka, Indonesia, Qatar, Kuwait and Saudi Arabia. In 2017-18, 570,000 tonnes of potato was exported to these countries, which earned about Rs11.8 billion in revenues. Pakistan’s export of potato increased from 272,800 tonnes in 2011-12 showing an average growth rate of about 11%. However, this surplus has often been a problem for farmers. The cost of growing potatoes is quite high, and, when there is overproduction, the price of potatoes falls on the market and farmers go into loss.

The overproduction issue

In 2019, Kasur was up in flames as farmers from all over the district burned the potatoes they had grown that year and marched demanding the government set a support price mechanism for their produce as a protection against negative market forces. They later staged a sit-in outside the Punjab assembly.

Punjab, particularly the 12-district belt that runs from Kasur to Khanewal district in the south, is the hub of potato production in the country. Potato acreage has been increas

ing on a year on year basis. That is because the crop is always in demand, and resilient in the face of weather and calamities. However, the increased acreage and yield has resulted in a situation where potato farmers regularly face the brunt of potato prices being very low on the market. As a result, sometimes they are not able to break even.

Potato Growers Society Vice President Chaudhry Maqsood Ahmad Jatt claims that the total cost of a bag of potatoes, from sow ing up till its transportation to the market, stands at over Rs2,000. Yet when the crop yields more potatoes than expected in any given year, there is the sudden problem that prices are well below this.

Despite the protestors being sent home packing with promises, very little was done to announce a support price. The problem once again reared its ugly head earlier this year. In February, then finance minister Shaukat Tarin directed the Ministry of National Food Secu rity and Research to come up with a strategy to export the surplus potatoes that would be grown that year. The country was expecting a record harvest due to increasing acreage and better-than-usual weather conditions.

The only problem was that we didn’t know what to do with all of these potatoes. The Federal Committee on Agriculture had fixed a target of 5.96 million tonnes of the crop for Punjab on 546,000 acres – an average of 273 maunds per acre. However, according to the Punjab Crop Reporting Service, the acreage has grown up to 740,000 acres — an increase of around 35.90% — this year.

By May, things were in motion. A record crop had been harvested — more than twice the size of the harvest in previous years with 8.5 million tonnes of potatoes produced in 2021-22 in Punjab alone. As a result, the export of potatoes rose by 10% from Paki

stan according to data from the commerce ministry. export value rose 9.8% to $87.39 million in 2020–21, up from $79.59 million the previous year.

However, farmers were once again facing the brunt of the problem. They had far too many potatoes and, as a result, the prices in the market were low. There can only be so much demand, and even the 10% increase in exports was not enough to cover the overall increase in the potato crop which had risen by nearly 40%.

So what’s the issue?

Normally, when discussing any crop in Pakistan, the issues are all quite similar. They need more attention, more research, more resources, and better farming techniques to increase the per hectare area yield. With potatoes, the problem is the opposite. Too many people are growing them and the yield is incredibly high, which means it ends up being bad for business.

The answer, however, is not to curtail how much we are growing, but to capital ise on it. The problem is that Pakistan has never exported more than 550,000 tonnes, which was during 2018-19. In the next two years, they fell to 339,000 tonnes and 314,000 tonnes, respectively. Even with the increase of 10% in exports in 2022, that still leaves a lot of potatoes that are going to waste and for which farmers are bleeding money.

The potato value chain only has a better rate of return for various actors when market prices are good, according to the planning commission report. “The real fears of farmers, however, do not come from market factors but from the government’s potato policy, which farmers say works against the potato sector. For example, whenever prices start going up, the government either bans exports or allows duty-free imports from the neighbouring country India or unleashes the district ad ministration at the retail sector to keep rates down. Farmers say they can deal with market realities, but the government should reconsid er its policy for potato crop on a reality basis,” reads the report.

High seasonal and year-to-year price movements seriously affect small growers who lack the financial resources and resilience to cope with such fluctuation. There is no proper mechanism to deal with instability in the potato market, and no such solution will be found until a well-thought-out potato policy is announced. On top of this, local markets are deeply inefficient. Small-scale potato growers need access to profitable emerging domestic markets – such as the rapidly grow ing processing segment – as well as to potato export to high-end markets. With Pakistan’s capacity for potato management very low compared to its production, we are stuck in a world where there are more potatoes than we can handle.

So when life gives you potatoes, you increase capacity and export them. n

Did the world of cricket miss out on its biggest ever televised event?

By Shahnawaz Ali

The city of Melbourne erupted on the 23rd of October, as Ravichandaran Ashwin lofted Muhammad Nawaz’s last ball for a single. The resounding roar of almost 90,000 spectators sent shockwaves across the 2nd largest metropol itan of the continent. Meanwhile, more than a billion viewers started celebrating in India, as television sets started fearing for their lives across the border.

The devastating scene of Muhammad Nawaz being brought to his knees, was watched by a record-breaking digital viewership of 18 million people, in India alone. While the figures of the televised viewership is estimated to be over 300 million, one begs to wonder if a final between India and Pakistan could have broken the record for the highest viewership record in the history of televised sporting events.

India and Pakistan collectively house more than 20% of the entire world’s pop ulation. An astonishing 1.6 billion people, across the two countries, religiously follow the sport of cricket. Add in a blood-stained history of political rivalry, and no bilateral ties between the two boards. An India vs Pakistan cricket match transcends the sport itself. The economic potential of such an encounter is magnanimous, and the International Cricket Council is aware of that. Unfortunately, India could not qualify for the world cup finals this time. But for a few days, the fans, the pandits and most importantly the organizers were able to dream about an event in cricketing history that could have shattered all existing records of viewership.

According to ICC, the infamous semi final of the 2011 ODI world cup had a televised viewership of 495 million. Days later, the record was broken by the final between India and Sri Lanka which had a viewership of 558 million. Since then, the countries have only faced off in ICC tournaments and played only one knockout game, namely the final of the 2017 Champions Trophy. That match had a television viewership of more than 324 million. Keeping in mind that all of these were ODI games, and require a much bigger watching commitment than a T20I. It is almost certain that a World T20 final could have brought in a

much bigger audience.

But could it have broken the all time record? Between 2011 and 2022, the population of India has gone up by 180 million and that of Pakistan has gone up by 42 million. That is a combined percentage increase of approx imately 16%. The median age of India is 28.4 years while that of Pakistan is 22.8. As per the Broadcast Audience Research Council of India, 35% of the live viewership of any cricket game is dominated by the youth. Bearing in mind that a World Cup Final is also viewed by cricket fans across the world, in large countries like Australia, Bangladesh, England, and mil lions of Indians and Pakistanis living overseas, the number of people anticipating the result of such a game, easily crosses 2.5 billion if not 3. For us to say that more than 600 million people would have tuned in to watch this match, is not just expected, but might be an understate ment.

The 2008 Olympics opening ceremony brought in a stark 2 billion live viewers, the

2010 FIFA world cup final brought in the excess of 900 million. Keeping in mind that ICC has only 12 full members, a game of cricket to bring in an even comparable viewership is extraordinary. The broadcasting rights of ICC went for $ 3 billion for the next 4-year cycle, which is half as much as IPL’s digital and TV rights went for, during the same cycle. Now, compare this to some of the rich sporting leagues and tournaments in the world, and how much they sell for, one can easily conclude that the ICC is not cashing in on the potential of any Pakistan and India encounters.

The ICC recognises this potential and so do both the boards. However, as of now both the boards choose to subside with their country’s political stand and feel more than self-sufficient, not playing any bilateral cricket. India is too big to rely on Pakistan’s market, and Pakistan has learnt to “make do” just fine without India. How long before this prisoner’s dilemma becomes mutually beneficial, as of now, remains a castle in the air. n

Could an India vs Pakistan final have seen the largest number of televised viewership in Telecasting history for a sporting event?

By Ariba Shahid

Mature currencies don’t need babying. And de spite the posturing by the government of Pakistan and its central bank that the rupee is stronger than it seems and can hold its own, it seems we are once again in a situation where the SBP is playing protective parent to the rupee.

And why wouldn’t they? This entire year has seen the rupee being bullied on the international markets and despite a brief recovery during the time that talks with the IMF were going well, the Pakistani rupee has been swaying and swinging all over the place punch-drunk from the many beatings it has taken in recent days.

The news that the State Bank of Pakistan is now putting limits on how much cash in

foreign currency can be carried for international travel indicates exactly this. The SBP’s announcement did not just put a simple limit but even specified that adults (people over the age of 18) were allowed to carry $5000 while children were allowed to carry $2500 per visit. If you usually make multiple trips abroad in a year, you are allowed to carry $30,000 in total as an adult and $15,000 in total as a child under 18 throughout the year.

Far from being the sign of a stable currency, the tactic points towards a certain desperation to keep dollars within the country and really sheds light on all claims that the rupee is on the road to recovery. It is also im portant to note that traveling with children is expensive and sometimes requires more money than adults themselves.

The SBP did not stop with just cash. After observing some fishy activities on credit and debit card transactions, the SBP imposed

limits on those also. The State Bank noted that transactions done through cards do not align with the individuals’ profiles.

For example, many people spend more on their credit cards than they earn in a month or a year, so the question of paying off the bill raises suspicions. Therefore, users of debit and credit cards need to ensure they are mindful of the $30,000 cap that is prescribed for a year. “It shall be the responsibility of a customer to ensure that his/her annual limit is not breached at any time. However, banks are required to monitor these limits on a consolidated basis for each individual,” said the circular.

Fake it till you make it

You’ve probably heard the phrase fake it till you make it. That’s what has been happening for the Pakistani Rupee under Ishaq Dar’s reign over

If the government wants the rupee to be treated like a mature currency, then it should stop treating it like a spoiled child

Q-block. Despite significant import pres sures, dwindling reserves, and the need for reserve support, Dar insists the rupee should not be priced higher than Rs 200 for a dollar.

He has even criticised his predecessor and party comrade Miftah Ismail for letting the rupee fall to market forces. After all, you really gotta brush the dirt under the carpet and put your best foot forward in front of the world. But of course, intervening in the free market isn’t the most ideal thing to do. That’s economics 101. And that’s where State Bank’s impositions come to save the day — or so they seem hopeful of.

“This is a far better barometer of the country’s ability to meet external liabilities than Finance Minister Ishaq Dar’s public pronouncements, which have more in com mon with the chants of a magician than with the basic principles of Economics,” says Ali Hasanain, Associate Professor of Economics at LUMS.

“While the finance czar continues to insist he has the dollars, and that the rupee will strengthen, the central bank has moved to restrict the outflow of dollars through air ports. Actions speak louder than words, and the central bank’s actions suggest that all is not well,” says Uzair Younus, Director of the Pakistan Initiative at the Atlantic Council.

Echoing a similar sentiment, macroeco nomist Ammar Habib says, “Your currency value is much lower than what you pretend it is when you have to restrict how much foreign currency minors can carry.”

Deputy Executive Director of SDPI, Dr. Sajid Amin Javed says that in his opinion, the curbing of currency outflows is meant to achieve a twofold purpose. “On one hand, it acts like administrative measures to curb imports. On the other hand, it saves outflow of dollars helping ease pressure on PKR.”

Amin however adds that he does not think this limit will be long-term. He says, “I think this is temporary and SBP may ease out gradually, particularly once the import curb purpose is achieved.”

ÜWhat about the gains?

You’re probably wondering what the rupee has been gaining despite being weak enough to need controls. The Pakistani rupee has been gaining the greenback. Today it appreciated 0.1% or 22 paisas and closed at Rs 221.42. This is the fourth consecutive day of gain for the Pakistani Rupee. Today it is backed by the SBP which announced an inflow of $500 million from the Asian Infrastructure Investment Bank (AIIB).

Over here it is important to point out that Letters of Credit (LCs) are still not processed at the same pace they were being processed before Pakistan was hit with a severe financial crisis in 2022. LCs are essential ly an economic guarantee from a creditworthy bank to an exporter of goods to incentivize international trade. However, to bring back confidence the SBP has recently increased the threshold of LCs from the present $50,000 to $100,000.

Last week, Finance Minister Ishaq Dar said that there were about 8,000 pending payments of LCs, out of which 4,400 cases of up to $50,000 had been cleared. Following the increase of the threshold, 1,365 more cases are expected to clear up.

Ali

professor at LUMS

So what’s the situation really like for the Pakistani Rupee?

This arbitrary curb on imports further keeps the rupee away from pressure; and while the government and SBP are claiming at cutting back on the curb one step at a time, the fact remains that this is just a backlog. Every month more LCs are added to the list and processing delays will still be happening.

With the SBP reserves currently at $8 billion and an import cover of roughly 1.16 months, the currency is not as strong as Finance Minister Dar claims or hopes it to be.

Macroeconomist Ammar Habib adds, “When the demand of something is suppressed, its price also gets suppressed and that suppression is coming through controls on import payments, resulting in PKR appre ciation in the inter-bank market. However, it’s a different story in the open market, where one can’t even buy even a nominal amount.”

Hasanain adds, “The Pakistani Rupee appreciates when the demand for our curren cy exceeds supply.” He questions whether Pakistan finally turned around our industries and started exporting more. Is there an uptick in incoming foreign investments? Or is there reason to believe that the economy will soon stabilise and take a relatively keel again?

“Minor shifts due to variations in the volume of transactions in a given week or month are expected. I see no reasonable observer answering these questions in the affirmative. The one scenario in which the Pakistani Rupee might appreciate in the foreseeable future is if we successfully secure another round of loans. However, when your currency has lost three-quarters of its value in the past fifteen years, it is hard to see a reason to be optimistic over a medium-term time horizon in the absence of the fundamental reforms Pakistan desperately needs,” he says. n

Your currency value is much lower than what you pretend it is when you have to restrict how much foreign currency minors can carry

Ammar Habib, macroeconomist

This is a far better barometer of the country’s ability to meet external liabilities than Finance Minister Ishaq Dar’s public pronouncements, which have more in common with the chants of a magician than with the basic principles of Economics

Hasanain,