Profit E-Magazine Issue 228

The Bank of Khyber is setting out

line of defence against the treasury single account

By Ariba Shahid

There is a problem at the Bank of Khyber (BOK). It is taking a beating because of a banking instrument called the treasury single account (TSA). To revamp, the bank is trying to look and operate more like a commercial bank. That, in a few lines, is the summary of this story. But what does any of this mean?

The International Monetary Fund (IMF) has long been asking Pakistan to implement a treasury single account (TSA) for better use of funds. While this step will help with fiscal consolidation, it has an impact on the banking sector in Pakistan – some banks more than others. The role of provincial banks comes into question following the complete transition to TSA which means these banks need to rethink their strategy beyond being a bank for the government.

BOK is one such bank.

For context, as per a report by Topline Securities, TSA is a negative development for banks in terms of systematic risk. This is because total government deposits with commercial banks are approximately Rs 1.9 trillion or 13.7% of total deposits, around which, Rs 0.9 trillion are federal deposits.

BOK has the highest government deposits (federal & provincial) at 63% of its total deposits, followed by the Bank of Punjab (BoP) at 56%, Askari Bank (AKBL) at 33%, and National Bank of Pakistan (NBP) at 29%.

In the first phase, the federal government deposits of Rs 0.9 trillion will be transferred to the State Bank of Pakistan (SBP) under a single account, which may be followed by the transfer of provincial deposits of Rs 1 trillion.

In conversation with Profit, Ali Gulfaraz, the Managing Director and Chief Executive Officer of BOK explained how a change in strategy

is needed to sustain the bank.

The BOK is a provincial government bank owned by the government of Khyber Pakhtunkhwa (KP), headquartered in Peshawar, Pakistan. Founded in 1991, the bank offers conventional banking, Islamic banking services, and microfinance loans. It was first listed on the Pakistan Stock Exchange (PSX) in January 2006 and has a network of 224 branches and ATMs across the country.

Gulfaraz explains the impact of the TSA. “The implications of TSA, if implemented to its maximum, can be severe for banks such as BOK that derive a substantial share of their deposits from the public sector. In practice, we believe that only a portion of our deposits, though not an insignificant one, is susceptible to TSA. This threat, therefore, takes centre stage in the way we plan our liquidity and business strategy.”

Gulfaraz adds that BOK, however, has some measures in place to mitigate the impact. ”From an asset and liability management perspective, we make sure that the portion of our deposits that are potentially vulnerable to TSA risk, are invested in government securities which can be easily and quickly liquidated to cover any large TSA-related outflows.”

In an earlier story, Profit analysed the advances and investments banks in Pakistan are undertaking.

This analysis was interesting as it showed that nearly all banks that we looked at had increased their exposure to investments. Samba Bank, AKBL, Soneri Bank, NBP, UBL, Bank Alfalah, Allied Bank, Standard Chartered, Faysal Bank, Habib Metro Bank, BOK, and Bank of Punjab increased their Investments to Deposit ratio over the span of 2012 and 2021.

In the BOK’s case, while there was a 7% increase in the IDR, one cannot ignore that the bank pulled up its IDR to 83% in 2021; while the average for the sector increased from 51% to 70% in 2021; revealing that the BOK has shown

an above average increase.

However, increasing deposits remains key for the implementation of this strategy and to offset any whiplash from TSA implementation.

Gulfaraz candidly states that private sector deposits for the bank are important for its future. “In order to diversify our deposits to include a higher share from the private sector, our key performance indicators and incentives for the relevant business development staff are highly weighted towards private sector deposits.”

He also adds that the BOK is setting up a dedicated team to accelerate the opening of salary accounts of professionals working in KP. This means that as a provincial bank, BOK is doing its best to stay relevant despite TSA.

Commercialise it

Achallenge provincial banks often face is that they are not usually treated like other commercial banks. Customers use them primarily for salary accounts when mandated, but seldom choose them as their bank of choice. This remains a challenge when trying to attract deposits from the private sector.

“For BOK, it is a strategic imperative to wean ourselves off our dependence on government deposits. When I joined as CEO 16 months ago, I noticed that our share of deposits from individuals was only about a third of the industry average of approximately 45%. Therefore, BOK is in a transformation process to become a retail bank of choice for our target clientele.”

To compete with other commercial banks, Gulfaraz is honest enough to admit that the bank is aggressively targeting ways to improve its perception.

“Our Annual Report this year won

its

Attracting deposits, seasoned employees, and increasing gender diversity may help the bank wean off its dependence on the government

awards at the ICAP awards in Karachi and we won third best in the entire SAARC region among public sector banks. There was no Pakistani bank ahead of us in our category. This is a clear reflection of the change, especially considering we had never been considered before,” remarks Gulfaraz, proudly.

While his office in Karachi is a temporary fix and not as modern looking as one would expect, Gulfaraz explains that a bank’s aesthetic and look are important for the customer experience. He said they are striving to not look like a government-owned entity. People often associate government offices with slow practices and bureaucracy red taping. By improving the furnishing and setting it at par with other commercial banks.

In order to do this, Gulfaraz says that the BOK is refurbishing old branches with a uniform aesthetic to make them more attractive to customers. “BOK is also expanding its branch network in locations suitable for retail customers,” says Gulfaraz.

To further improve the perception and shed the “government bank” image, Gulfaraz says that an emphasis has been placed on marketing; especially keeping in mind the cultural connection.

“We’ve strengthened the marketing team with a focus on developing the BOK brand as a modern, responsive, friendly, capable, digitally effective, inclusive, and environmentally ethical brand by shedding the legacy image of an unfriendly, old-fashioned, unresponsive public sector institution.”

In order to appeal to the residents of KP, the bank tries to outline heritage sights, cultural practices so that it is seen as a bank for the people of the province and not an external operator. To prove his point he scrolled through the BOK Facebook page. While scrolling, he showed how it was evident through the change in style when they brought in new marketing methods.

A fan of art, heritage, and culture, Gulfaraz points out how the cultural significance of KP will remain at the forefront of the BOK’s message to leverage and connect with the target audience. He also adds that while he is not a Pashtun himself, nor is his family from KP; he does not want to be seen as an outsider trying to change ways, but to celebrate what is there..

While perception matters, entering the digital realm is important too. It may be late to the party but the BOK finally launched its mobile application on January 15, 2021. For this purpose, the bank brought on board Temenos’ Middle East implementation partner based in Pakistan – National Data Consultant (NdcTech). This supports the bank in offering differentiated retail, SME, and corporate banking products, including accounts, time deposits, and loans for both Islamic and conventional

banking.

In addition to digital offerings, the bank has also partnered with MasterCard to bring universal acceptability to their cards across digital and physical channels.

“In order to achieve our goal of becoming a successful retail bank, it is critical to offer highly effective digital financial services. We have recently signed several partnerships such as with MasterCard, various fintech firms, and other technology firms.”

Gulfaraz explains that these partnerships are in the early stages of implementation and will be live by the middle of 2023. He says they will enable BOK to offer customers significantly enhanced digital capabilities and user experience which are essential to staying competitive in today’s digital landscape.

The unique advantage of provincial banks

According to Gulfaraz, despite being a provincial bank, the BOK does draw similarities with commercial banks. “We are more like any other commercial bank than we are unlike. Our branch network and lending portfolio are also spread across the whole country but certainly concentrated in our home province of KP.” For context, 161 of BOK’s 224 branches and ATMs are based in KP.

“What differentiates us probably has more to do with the fact that we are a bank from KP than being a provincial bank. Whereas other banks also have their branch networks in KP to raise deposits they do proportionately less lending in the province, especially at the SME level. “

To explain the unique position better he adds, “As the BOK, it is natural for us to lend a greater proportion of our deposits within KP across all borrower segments. It also means that when it comes to public welfare programmes related to poverty alleviation or crisis management we act as the disbursement partner to our principal shareholder i.e. the government of KP.”

Gulfaraz cites the most recent example of this – the BOK’s role in opening up accounts of approximately 50,000 financially excluded KP residents whose homes have been destroyed by last year’s floods. The KP government is using BOK to disburse funds for the reconstruction of homes for the affectees.

Gulfaraz adds that as a provincial bank, they have the additional responsibilities of bolstering and supporting the government.

“In general, being a provincial bank, helping support the economic progress of the province is part of our core mission and we therefore, focus our branch expansion, lending, financial inclusion, and CSR activities in our province,” says Gulfaraz.

Financial inclusion

Like all banks, Gulfaraz says that they are working with the government and the regulators to increase financial inclusion in the country. He, however, adds that as a government bank; the responsibility is greater.

The magnitude of the challenge can be assessed by the fact that as per the World Bank, Pakistan has the third-largest unbanked adult population globally. Around 100 million adults do not have a bank account. Women make up 82 % of the unbanked population. While this is a nationwide problem, experts suggest financial inclusion is lower in KP compared to other provinces such as Punjab and Sindh which have large urban centres and greater people employed in the formal workforce.

While financial inclusion is a greater challenge in KP, Gulfaraz highlights that it’s a national challenge. “We have a large gap even when compared with countries in our region with similar economic or cultural characteristics.”

He adds that “the financially excluded have been below the radar of the banks due to the perceived cost/benefit imbalance in acquiring their business. However, I feel that due to a progressive government, KP is making progress in this regard.”

Gulfaraz explains the KP government has launched some ambitious social welfare programmes such as the Insaf Food Card (aims to distribute monthly financial assistance to 1 million low-income households) and the Flood Reconstruction Programme (distributing funds for the reconstruction of homes damaged by the devastating flood).

“The beneficiaries of both of these programmes are mainly the financially excluded and so such programmes have the additional benefit of bringing financial inclusion to the beneficiaries. The BOK is proud to be the exclusive partner to the KP Govt on these programmes.”

As per the most recent statistics published by the State Bank of Pakistan (SBP), there were approximately 15 million women-operated mobile money accounts as of December 2020, registering a growth of 51% in a year. KP made only 10% of these accounts; while Punjab accounted for 67% and Sindh 22%.

“Additionally, due to cultural considerations financial exclusion disproportionately affects women. In order to remove cultural issues preventing women from travelling to bank branches to open and operate their accounts, BOK is focused on providing a digital solution. Our mobile App now enables digital account opening with biometrics through a smartphone removing altogether the need to visit a bank. We intend to develop targeted communication to help more women across KP open their bank accounts.”

For BOK, it is a strategic imperative to wean ourselves off our dependence on government deposits. When I joined as CEO 16 months ago, I noticed that our share of deposits from individuals was only about a third of the industry average of approximately 45%. Therefore, BOK is in a transformation process to become a retail bank of choice for our target clientele

Ali Gulfaraz, CEO of the Bank of Khyber

Workforce participation

After graduating from the top universities in the country, individuals who want to enter the banking sector usually look towards big commercial banks in the country for employment. The number of students from these top business schools hoping to join a provincial bank are presumed to be few. This is a challenge identified by Gulfaraz.

“A service sector organisation like a bank cannot achieve sustainable success without attracting and retaining top quality talent into its ranks. This is one area where I personally invest my time to help define a vision of BOK’s transformation into a modern, inclusive, agile, and successful bank.”

“Having worked at some of the world’s largest banks and companies such as Bank of America

and Apple, I have seen how these organisations attract top talent from across the globe with no consideration other than merit.”

The BOK launched a graduate trainee programme with competitive packages to bring in new and fresh talent. During the year, the bank added 473 new hires.

For Gulfaraz, creating the narrative of a bank on a transformation journey has been as important in the hiring purpose as it has been in attracting customers. He explains that the change in narrative helps the bank to attract high-quality talent from top institutions across the country.

However, similar to financial inclusion, female workforce participation remains a challenge for the region.

“No economy in the world can make significant progress in poverty reduction and living standards without the effective participation of women in economic activity. As a leading corporate from KP, we also believe it is our responsibility to champion the workplace inclusion of women in our province.”

To explain the dire situation at the bank,

Gulfaraz says, “When I joined the bank, our female staff ratio was only approximately 6%. Furthermore, there were no women in C-level positions and only two in an SVP grade.”

As per the 2021 financial statements; the ratio has inched up to 8.77% of the total workforce.

“In little over a year, we have improved our female staff ratio into double digits and inducted two very capable women in high profile roles at SVP grades.

Additionally, we have hired/promoted several women into branch manager roles.”

In order to address the gap in employment and enhance gender diversity, the BOK inducted a batch of female Management Training Officers (MTOs).

Gulfaraz adds that the bank has also taken a number of initiatives to become a safe, inclusive, and comfortable workplace. “We are only at the start of this journey and expect to continue making progress in this regard. Again, we are very pleased to have very progressive stakeholders in the KP government who have been very supportive of our efforts in this regard.”

Focusing on perception, Gulfaraz made it a point to have women at the forefront of external communication the bank puts out, such as independence day celebrations, hiring posts, and testimonials.

Gulfaraz calls himself a feminist and has been visibly upset with low female participation in the bank’s workforce. He sadly admits that until last year women were far less interested in joining the bank, perceiving it as a less hospitable environment for women. Now he is hopeful with things improving. “I am very pleased to say that our efforts have paid off and we now receive far more interest from women in joining the BOK.”

The challenges

While the bank has a traditional set of challenges that all banks are facing in Pakistan, it also has to deal

with waves of terrorism. “KP has borne the brunt of the wave of terrorism that engulfed Pakistan following 9/11. Fortunately, the situation has calmed down substantially and over recent years the conversation has been more about commerce, sport, and cultural activities.”

Despite this change, Gulfaraz reminds us that there have been some disturbing signs of worsening insecurity emerging again. Mourning the loss of an employee, Gulfaraz says, “Sadly one of our senior colleagues from the IT division lost his life in the bomb blast at a mosque at the QissaKhawani market of Peshawar in March 2022.”

“The population of KP is resilient and can bravely face any threats though we really hope we will not see any further insecurity in our province going forward.” The extent of this challenging dynamic can be seen by looking at the BOK headquarters in Peshawar. The windows are above eye level in order to keep employees safe from any attack; as in the past, this has been a major concern.

However, politics is seen as another problem for a provincial bank. Gulfaraz points out that he is the 18th CEO in 23 years at the BOK. For context, on average other commercial banks have five CEOs at max during this span of time.

“Perhaps, more than anything else, this single fact explains why the BOK fell behind its competition in many respects. Stability at the helm is necessary for us to make sustainable progress.”

While provincial political pressures are thought to be hindrances in performance, Gulfaraz negates it. He says, “I am very pleased to say that in my time as CEO, I have not received any pressure or interference from the KP government in our affairs. On the contrary, we have the full support and encouragement from the KP government to professionalise and modernise the bank and take all decisions purely on merit in the best long-term interests of the bank and its shareholders.” n

By Abdullah Niazi and Shahab Omer

Afew months ago, a new current affairs television channel hit Pakistan’s airwaves. By all estimations this wasn’t a big deal. Pakistan’s media is a bloated, ungainly, over-saturated behemoth running simply on its own inertia. New news channels being launched and old ones shutting down is an everyday occurrence.

What is often interesting, however, is who the owners of these channels are. Just take a look at the case of Suno TV, the brand new channel in question. Suno’s launch was accompanied by a significant marketing campaign. A drive around Lahore would show that the channel had spent a pretty penny on plastering their logo on any billboard and street light available. Among their roster they boasted a number of well-known analysts, journalists, and TV talking-heads that are household names.

What was more interesting was the channel’s initial test run. Before going live on air, channels air stock footage on loop to test the running efficiency of their broadcast. In this phase, the stock footage Suno TV was running were ads for Blue World City — a real estate development project in Chakri on the outskirts of Islamabad.

So why is a brand new television channel broadcasting advertisements for a real estate project that has still not been approved by the Rawalpindi Development Authority (RDA)? In short, as officials of the Pakistan Electronic Media Regulatory Authority (PEMRA) have informed Profit, the news channel is owned and operated by the same group that owns the Blue World City project. According to an official of PEMRA’s licensing department, Suno’s licence is in the name of a company formed for this very purpose. And while Blue World’s CEO Chaudhry Saad Nazir is not involved directly, PEMRA has said that they are aware the channel is backed by the Blue World group.

That brings us to our next question.

What kind of business expansion results in real estate developers investing money in a news and current affairs television channel?

The news media business is a dead-end. With ad revenues down and the digital medium gaining more traction by the day, the profit motive is definitely out of the question. Even if you were to not consider the censorship aspect, and even if you made a big splash and have a lot of resources, chances are that if you started a news channel tomorrow you would be much more likely to bleed out money and fail than you are to make even a small profit.

So what drives so many people to open television channels? The answer is influence. While news channels may not make you much (or for that matter any) money, they do give you a powerful platform that can be used to craft and deliver your own narrative. A number of influential people have bought television channels over the years. Just last year, former PTI Senior Minister in Punjab Aleem Khan was in talks to buy Samaa — one of the biggest television news channels in Pakistan.

Over the past few years, Blue World have found themselves in a number of different controversies that may have given them the desire to find their own foothold in the news media. But what is the Blue World story?

The Blue World Saga

It starts with Chakri. Outside the boundaries of Islamabad and Rawalpindi, this rich swathe of land had long been earmarked as a potential moneymaker by real estate developers. Currently, according to details available with Profit, there are at least 50 housing societies vying for space in the area around the Chakri interchange, where they believe a new city extending out of Islamabad and Rawalpindi will attract investors.

The only problem is that the land in Chakri is a quagmire of legal cases, feuds, and disputed ownership that now has multiple parties involved. In Pakistan, real estate development is a game of gambling. No single investor or group has enough money to buy thousands of kanals of land, develop it, and then start to sell the plots to people. So instead of doing all this hard work, they focus on marketing heavily, selling pre-registration certificates, files for plots to be allotted in the future, and by getting property dealers to hype up their upcoming housing societies.

It is only after they have made enough money by selling files, certificates, and all kinds of marketing tools to gather the capital they need for these projects, that they actually start buying the land that they have promised a number of people in the form of files. The problem is, since the land has not been acquired completely as of yet, it either gets sold to someone else in the meantime or some legal issue arises over it, which means people who buy files in these societies end up having their money tied up for years on end. All of this they do without getting any prior permission from local authorities, so even if the land is successfully acquired, it may be a long time before they are given permission to build their society on it.

Most of these societies in Chakri have no standing with the Rawalpindi Development

Real estate is a dirty business in Pakistan. Blue World City is currently unapproved by the RDA, and with the tensions high in Chakri there is a chance that they will once again find themselves in the eye of the media over different controversies. Having a television channel of their own gives them some influence to counter any critical reporting

Authority, which is the governing body on such issues. Despite this, they continue to inflict violence on each other and fight over disputed land, all the while fooling unwitting investors into giving them their money. Initially, when it was launched in 2017, Blue World City was only one of these small fish in a big pond. By 2018, however, they started appearing as a big name. Having presumably collected a decent amount from initial sales of files, they went on a massive marketing campaign that used all of the tactics mentioned above and then some. They even roped in Engin Altan, the Turkish actor who plays the lead role in the Ertugrul Resurrection drama series that has become a phenomenon in Pakistan, to be their brand ambassador.

Since those early high flying days when Blue City became one of the hottest names in the Chakri real estate market, things have gone south. The society still does not have approval from the RDA and the land authority says it is not planning to give its approval any time soon. In fact, on recommendation of the RDA, Blue City is being investigated by the National Accountability Bureau (NAB), and has not bought a fraction of the land they claim to already be in possession of.

What has followed have been gang-wars between different housing societies in the region, with Blue World particularly clashing with rival society Abdullah City. The situation has since been eerily calm, but with the RDA continuing to not give Blue World City the green light and Blue World City continuing to sell files despite this being in clear violation of the law. In fact, in a recent message posted on social media, Blue World’s chairman Chaudhry Saad Nazir said that they were developing an overseas block, a general block and were planning on opening new ventures as well.

The legality question

Most of the societies in the Chakri area are not registered with the RDA. It is a classic case of having the cart before the horse. Any real estate developed should first acquire the land, get permission from the authorities, and then start marketing and selling the project. Instead Blue World, and other societies like Abdullah City, began by marketing it first, then trying to (unsuccessfully) get permissions, and then trying to (unsuccessfully) acquire the land. In the process, gun battles have left one dead, Blue World City staged a protest on the motorway by blocking it, and had one of their directors, Chaudhry Naheem Ijaz, arrested in the process back in March 2021.

Normally, the bigger housing societies do go through all of these hoops and then start selling more plots than they own. For example, if a developer has 500 plots, he may book 5,000

plots and then dodge the people. While this is illegal, the entire premise of the project is not illegal. In Blue World’s case, they seem to have taken it to another level. On August 8, 2018, they got verification from the district council, which was only the first step. They sent this verification to the RDA and began selling plots and marketing their society as “approved”, before it had actually been. But then four days later, on August 12, 2018, the RDA declared Blue World City an illegal housing society. Blue World has since got planning permission twice, and moved since from illegal status to unapproved status. Despite this change in status, they are still not supposed to be conducting any business but have continued to sell plots and expand.

All of this, and they still neither have any land that they own despite having sold thousands of files, and they also continue to get denied permission from the RDA. In the process, they have turned Chakri into gangland. Getting young boys in at salaries of Rs 25,000 to Rs 30,000, as told to Profit by the police, to move around with guns and strike terror into the hearts of their opponents. Gun ranges have been established, and even the police are afraid of the consequences of what has become a quickly escalating and heavily armed situation.

The television news angle

Real estate is a dirty business in Pakistan. Blue World City is currently unapproved by the RDA, and with tensions high in Chakri there is a chance that they will once again find themselves in the eye of the media over different controversies. Having a television channel of their own gives them some influence to counter any critical reporting.

There is still a shroud of mystery surrounding this.

As mentioned earlier, the news channel is not owned directly by Blue World City or by its chairman Chaudhry Saad Nazir. Profit reached out to officials from Blue World City for com-

ment but did not receive any response despite multiple attempts. “The channel Suno TV is a news and current affairs channel that has been granted this licence. PEMRA is also aware that the channel is associated with the real estate developers that are behind the Blue World City project in Chakri,” said a high-ranking official of PEMRA’s licensing department.

“We cannot name the company that holds the licence, but we can say that Chaudhry Saad Nazir is not even the person that is at the helm of this company. There are other frontmen who are handling this but we have clear information that this is how things are being run, and it is nothing new. A number of businesspeople have opened channels. In fact, there is more than one channel that is also backed by Malik Riaz. The system they follow is always the same as creating a company and getting a licence in its name,” added the official. The possession of a television news channel comes with influence. Say, for example, you are a businessman who also has political or social interests. If there is a story breaking about you or your business in a newspaper or on a different channel, all you have to do is mobilise journalists who work for your channel to tell another version of the story. Anyone who doesn’t comply can be terminated, and everyone will listen because you pay their salaries. It is a neat little solution, and one that happens far too frequently.

Pakistan’s news media is already greatly saturated. As of late 2017, 89 satellite TV licences have been issued by PEMRA. Another 29 foreign channels had been granted landing rights. At least 30 private TV channels, prominent among them Geo News, Dawn News, Aaj TV, ARY News, Capital TV, Samaa, Dunya News, Waqt News, and Express News, exclusively broadcast news and current affairs programmes. While this expansion was genuine in the late 2000s, over time the news media business has too many players and too little money. Since this is not a money-making business, all that is left behind is a game of influence. And that is exactly the game being played here. Only time can tell what will become of it. n

Say, for example, you are a businessman that also has political or social interests. If there is a story breaking about you or your business in a newspaper or on a different channel, all you have to do is mobilise the journalists that work for your channel to tell another version of the story. Anyone that doesn’t comply can be terminated, and everyone will listen because you pay their salaries. It is a neat little solution, and one that happens far too frequently

Asif Saad

Of Councils and Chambers

Iam sure everyone has heard about lobbyists and most people know that these individuals or organisations exist all over the world and are connected to politics and government. In fact, their main task is to influence the government – to ensure protection of business and financial interests of those they represent. It could be to lobby for or against laws, regulations and rules which promote or hamper the particular lobby. In Pakistan, these lobby groups include various chambers of commerce, business councils and many powerful industry-specific associations. Is their role in our economy good, bad or perhaps both?

We recently heard of a delegation of a prominent business lobby group visiting the prime minister. According to press reports, this particular delegation, which was composed of top businessmen and corporate executives in the country, gave a strong message to the Prime Minister and his economic team. Something on the lines of what must be done by the government to save the economy.

Noble intentions, I am sure and from well-meaning individuals who have the country’s interest well and truly deep in their hearts. Of course, this was not the first or the last group of business representatives to suggest what needs to be done to fix the problem.

The problem, as we all know, is simply that the country spends much more than it earns and therefore it has no money to pay its bills. For this problem, everyone, at least the dozens who pop up on the idiot box every day, has a solution. The business councils and chambers being no different, wave their own magic wand.

But I am curious if any of these lobby groups have taken note of how the government earns and where it spends. I don’t mean an analysis of government tax revenues and expenditure on defence, debt servicing etc. Even school children in Pakistan are well acquainted with those.

Instead, I mean analysis of government support and subsidies that benefit the many augusta members of these lobby groups. How much is

The writer is a strategy consultant who has previously worked at various C-level positions for national and multinational corporations

provided by the government as a result of regulatory capture, guaranteed returns, subsidised inputs, state granted cartels and monopolies – to name a few traditional avenues for wealth creation in Pakistan. When banks and financial institutions fix interest rates with little or no competition – there is a huge price paid by businesses and the economy. When power producers and distributors are provided dollarized guaranteed returns there is a large burden placed on the economy.

When entire industrial sectors are placed in near to zero tax regimes, the economy loses a major revenue source. When industries are protected beyond reasonable levels, the extra cost is borne by the consumers. When certain sectors are chosen to access the fast-dwindling natural gas reserves, the entire country pays for lost opportunity.

When was the last time a bank tried to take risks and provide loans to businesses to try and jump-start the economy, instead of earning massive returns from government treasury operations? Can the power producers free themselves of the guaranteed dollarized returns / over invoicing model which has broken the back of this country? Can they risk investing in models in which they have to be competitive?

Has the manufacturing sector thought about innovation and better business strategies to compete in the international market – instead of relying on cheap labour, energy, tariff protection – all underwritten by the government.

I can go on and on but the point is that no large-scale industrial sector in the land of the pure is able to run without government handouts. It is not just the physical loss of revenues or higher cost for the public; government dole is the very reason that these sectors remain inefficient and their management teams, ably backed by the lobby groups, exert maximum efforts in trying to cling to these broken business models.

It’s a vicious circle – the more the government gives the more needy the sector becomes. Where are the Pakistani big businesses taking risk – is something one would like to understand! Or as some would say – being in Pakistan is the riskiest of all enterprises. If so, there are over two hundred million of these risk takers and most of them probably not by choice!

Coming back to our councils and chambers, what purpose do they wish to serve? Should they continue to support elite capture or they need to introspect and think about reinventing themselves? How about planning to wean off their industry from all types of government subsidies, sooner than later? This, in my view, is the biggest challenge for any industry and one that merits all the brains associated with any particular sector to work endlessly for.

It is sad to see the continuous parade of businessmen and lobbyists to and from government offices, frequently followed by atrocious looking newspaper advertisements with claims about employment generation, taxation and how they are the Almighty’s gift to the nation.

All in bad taste.

No doubt that government subsidies and concessions have a role to play – and this is true globally. But should it be timeless and indefinite? Something that the industry learns never to live without? If so, and if our businesses can only survive on the ventilator, then the only decision to be made is when to pull the plug. The lobby groups need to think out of the box! n

Do various business lobby groups operating in Pakistan represent the rentier economy?

No matter what Ishaq Dar says, your dollars are not his

By Ariba Shahid

Panic was high following Finance Minister Senator Ishaq Dar’s remarks in an interview where he said that the dollars held by commercial banks also belonged to the country; making the reserves roughly $10 billion. The comment created a panic sentiment amongst dollar depositors in the country worrying about the government taking over their reserves.

Why did people panic?

This is not the first time depositors of foreign exchange found themselves in a tough position. In 1998, the then prime minister Nawaz Sharif declared a state of emergency following Pakistan testing five nuclear devices. The US government had imposed economic sanctions on Pakistan, along with Japan, one of the largest aid donors of the country.

As a result of a surprise move, on May 28, the government ordered banks to remain closed across the country; and all foreign currency accounts worth $7 billion were frozen. The finance minister at that time Sartaj Aziz said that these measures were necessary to stop the flight of foreign money which would bankrupt the country.

The government fixed the dollar rate at Rs46 and advised the account holders to withdraw their money in Pakistani currency.

A day after the nuclear blast and subsequent clamp-down on foreign currency accounts, the Federal Finance Minister, Sartaj

Aziz in his press briefing at Islamabad advised the account holders of foreign exchange to withdraw their money rather quickly in local currency and invest it in national saving schemes which offer attractive rates of returns. Foreign exchange account holders were then given a deadline of August 31 to withdraw their deposit in local currency.

At the time Aziz said that Pakistanis should buy Pakistani goods, avoid smuggled items, and live simply.

“I watched Nawaz Sharif make the announcement live on television. At the time I was in the LUMS executive center housing where branch managers from all across the country were present for training. One by one, branch managers stepped out to answer calls on their cellphones. Each came back stating how much they were asked to wire out of the country. There was an active withdrawal of FX from the country,” recalls Khurram Husain, an academic at LUMS at the time and now an economic journalist and analyst. Husain adds that Pakistanis were waiting hour by hour for Pakistan’s reaction to the Indian nuclear tests.

He says that the general consensus of businessmen at the time was that the government unnecessarily panicked. “However, it is important to note that Pakistan did not have enough dollars to honor all those transactions. Had the outflows been allowed, the government would have eventually run out of dollars and would then stop transactions. So it was a question of whether to freeze or not.”

Husain reminds that back then the short term swap position that the government had taken had depleted reserves. On August 18, 1992, the government passed the Protection of Economic Reforms Act, 1992 that superseded

all past laws and allowed “freedom to bring, hold, sell and take out foreign currency”.

What do the laws now state?

As per the SBP laws, “The amounts of foreign currency deposits accepted outside State Bank’s forward cover scheme i.e. under F.E. Circular No. 25 of 1998, are not required to be surrendered to the State Bank and the Bank will not provide any forward cover for the same. The Authorized Dealers accepting such deposits are free to lend, invest and place on deposit such funds in Pakistan and abroad subject to the observance of regulations prescribed under the Banking Companies Ordinance.”

What this means is that NBFIS and banks accepting the funds would not be required to surrender the same to the State bank nor the State Bank would provide a forward cover in respect of such accounts. The institutions accepting such funds will be free to keep / invest the same abroad, in addition to their usual Nostro balances or to invest / lend it in Pakistan.

This also means that they will also be free to recover reasonable bank charges on handling cash transactions in foreign currencies received into or paid out of such accounts. The balances of new foreign currency accounts will not be required to be reported to the State Bank of Pakistan in the statement prescribed on pages of Appendix V of the Foreign Exchange Manual. Instruction regarding reporting for monitoring purposes of transactions under the new scheme will be issued separately. n

I watched Nawaz Sharif make the announcement live on television. At the time I was in the LUMS executive center housing where branch managers from all across the country were present for training. One by one, branch managers stepped out to answer calls on their cellphones. Each came back stating how much they were asked to wire out of the country. There was an active withdrawal of FX from the country

Khurram Husain, former editor Profit

What does and does not determine the value of the rupee

By Yousaf Nizami

What is the money in your name and your wallet really worth? One way of arriving at a number is calculating what all it can buy today as compared to a month back and perhaps what it will be able to purchase a month later. Another less tedious way that would provide a more absolute number, which changes almost daily and is a more approachable concept for most is how many dollars it can buy today, a month back and a month later.

This is important information for investors looking to spend, save or invest and businesses to formulate budgets, strategize and plan. It is therefore important to understand what does and does not have an effect on the value of the Rupee against the USD.

The conventional stuff

One of the most talked about macroeconomic indicators of the direction and health of Pakistan’s perpetually struggling economy is the value of the Rupee against the US dollar. This is understandable as it directly and indirectly, determines the prices of most, if not all, goods and services and therefore the inflation rate.

The most obvious explanation, as with any currency or commodity, is its domestic demand and supply. If the supply for USD is lower than demand in the interbank market, the Rupee will lose value against the greenback. If demand is lower than supply, the Rupee appreciates. The same applies in the open market for physical USD. Various factors determine how much USD is available in the market at any given point in time.

In normal circumstances, the unavailability of USD in the interbank owing to heavy payments (imports and/or loan repayments), will put downward pressure on the value of the rupee against the greenback. Similarly, if individual investors strongly feel that the value

of the rupee will be falling in the short term, they will buy and hold more physical USD for longer for more capital gain, thus creating a shortage in the open market causing the rupee to depreciate.

Additionally, macroeconomic indicators such as the current account deficit, inflation and policy level changes such as the discount rate or specific policy changes aimed at the local foreign exchange market will also influence the USD/PKR parity.

There are some artificial measures that the government and SBP take to stabilize the Rupee that disrupt the process of market forces accurately valuing the rupee against USD. Flooding the interbank market with USD from foreign exchange reserves with the central bank is one way, which has had disastrous effects on the long term stability of the currency, as is being witnessed currently. Then there are administrative measures such as restricting banks from retiring import LCs and issuing of fresh LCs and making it tougher for individuals and businesses to buy physical dollars in the open market. Of late, in some instances, customers have been unable to withdraw cash from their USD bank accounts.

at a EUR/PKR or GBP/PKR rate. Even if there is a change in the USD/PKR, coinciding with a change in the EUR/USD or GBP/USD, that is solely owing to domestic factors in Pakistan, not the even or data that has strengthened or weakened the USD internationally.

An example

Let’s say on Monday, the USD/PKR is trading at 227. The GBP/USD is trading at 1.22. Anyone looking to buy GBP in Pakistan will have to buy at a rate of 276.94 (USD/PKR * GBP/USD).

The next day, the US government releases inflation data which is better than expected. This strengthens the USD internationally and the GBP/USD starts trading at 1.18. The USD/ PKR parity is unaffected by Americans being able to buy more food due to lower inflation, and stays at the same rate of 227. Anyone who didn’t buy GBP on Monday, but bought on Tuesday, would get a rate of 267.86.

Since third currencies are traded in a substantially lower volume than the USD in Pakistan, it would be intellectually dishonest and frankly lazy to even suggest that international USD strength has any bearing on the value of the PKR against the USD. The rupee does not care about what the international value of the USD is doing. The rupee is not big enough, not important enough.

If you read the sort of content produced by us or other business journalism publications out there, you may have come across a piece or two about the Rupee in which the author casually slips in the proposition that the strength or weakness of the USD internationally has strengthened or weakened the Pakistani Rupee. This, dear reader, is pure hogwash! Yes, if you speak in terms of third currencies such as Pound Sterling (GBP) or the Euro (EUR), the global value of the USD against the aforementioned, will have an effect on the value of the Rupee against third currencies. But that is only because of the GBP/USD or EUR/USD component of that conversion changing.

Nothing is happening to the USD/PKR leg of the conversion that is necessary to arrive

Think about it this way: why do you purchase USD, EUR, GBP etc. before going on a vacation? One reason is possibly because the local currency accepted as legal tender in your travel destination isn’t easily available in Pakistan. But more often than not, because no currency changer other than the ones in Pakistan will accept Rupee as legal tender and exchange it for USD or the local currency of your holiday destination. Another way of putting it is that the traded volume of the rupee as a currency, other than in Pakistan, is practically zero. Why then would any changes in the biggest economies in the world have a direct effect on the value of the rupee?

The rupee responds only to changes in the domestic market!

Oft mentioned, but meaningless

What the ETF?

Understanding the technicalities of Exchange Traded Funds (ETFs)

By Muhammad Raafay Khan

You have probably heard of mutual funds, which is a place to put your money if you want to forget about it for a while. But now there is a hot new fund in town called an Exchange Traded Fund (ETF).

An ETF is a type of fund which trades like a stock on the Pakistan Stock Exchange (PSX), has lower management fee than mutual funds, and tracks specific indices such as the KSE100. Globally, ETFs are worth $ 10 trillion. In Pakistan, however, the ETF market is still in

its nascent stages with just below $ 4 million (Rs 850 million) of assets under management (AUM).

Today we try to understand these ETFs, what kind of ETFs are available on the PSX, and we look at one ETF in particular, the National Bank of Pakistan Growth ETF (NBPGETF).

What are ETFs?

An ETF is an investment product offered by Asset Management Companies (AMC). They consist of a basket of securities that tracks an index (aka Benchmark Index). ETFs are avail-

able to investors on the stock exchange and trade like stocks with real time pricing during trading hours. The aim of the ETF is to mirror the performance of the index it tracks.

Naturally, the performance of an ETF is dependent on the performance of the underlying securities it holds, much like a portfolio of stocks held by an individual investor. Like all financial products, ETFs have a risk. However, they may face a lower specific risk than a particular stock as they comprise a basket of stocks. They diversify your investment if you can’t diversify them yourself.

Like stocks, ETFs have two types of returns:

a) Capital Gains: Investors can trade

ETFs like a stock by buying it at a low price and selling it at a high price to realise the profit/gain.

b) Dividends: The ETF fund manager earns dividends from the securities that comprise the ETF basket, which may be distributed to ETF unit holders after the deduction of management fees etc. The dividend distribution policy of ETFs are described in their prospectus or offering document. Dividends received by ETFs are tax exempted (for the fund, not the investor) provided 90% of dividend income is distributed to unit holders.

Individual stocks and ETFs trade alongside each other on the stock exchange but there are two major differences. First, ETFs are generally much more diversified as they comprise a basket of stocks. Second, most ETFs track specific indices, whereas individual stocks do not (obviously).

Investing in ETFs is generally better from a diversification perspective which begs the question, why not just diversify in stocks yourself?

Well, the main reason ETFs are preffered is that investing in ETFs saves the individual investor the time and hassle required to research and make stock-specific investment decisions themselves. The costs/fees of investing in ETF units are also generally lower compared to mutual funds. However, new investors should understand the risks associated with investing in equity markets.

ETFs are traded in the PSX and no front and often no back-end fee is charged. The front-end fee is the fee charged by mutual funds at the start when you invest in them. The back-end fee is charged when you take your money out from a fund. However, ETFs do charge a management fee which is determined by a lot more factors than what the ETFs brochures simply put under “management fee”.

The trading price of an ETF is determined by the demand and supply of the ETF unit in the market. Like mutual funds, ETFs have a Net Asset Value (NAV) (total assets minus total liabilities) which is published daily after close of the stock market for investors to actually gauge the underlying value of their holdings.

In addition, investors also have the benefit of an Indicative NAV (INAV) available at specified frequency during the trading hours to help them make trading decisions. ETFs are designed in such a way that they trade at a price close to their underlying basket price. Investors are informed of the INAV of the ETF units/shares which is disseminated at specified intervals of time throughout trading hours.

Even though the difference between the NAV (share price) and INAV (actual value of fund assets) is often small, market forces often lead to times where the ETF will trade at a discount or premium to its INAV.

On the other hand, a mutual fund isn’t

priced until the trading day is over. And mutual fund units are purchased directly from the mutual fund at the respective NAV. Investment in mutual funds may be subject to front-end or back-end load/sales charges, whereas investors in ETFs are subject to brokerage charges and management fees.

Types of ETFs available on the PSX

There are seven ETFs currently available on the PSX, and all of them track a different index. ETFs in Pakistan are in their nascent stages. The first two ETFs were launched in March of 2020 followed by two others in the same year. And then three more ETFs were launched in 2022 making a total of seven ETFs currently. Take a look at the diagram for a brief overview of the different types of ETFs available on the PSX.

1. NIT Pakistan Gateway ETF (NITGETF) was one of the first two ETFs launched on March 24, 2020. It aims to track the NIT Pakistan Gateway Index that represents the top 50% free-float market capitalisation of KSE-100 at all times.

2. UBL Pakistan Enterprise ETF (UBLPETF) is the other first-launched ETF which aims to track the performance of top nine companies with highest free-float market capitalisation of KSE-100 index (excluding Oil and Gas sector companies).

3. Meezan Pakistan ETF (MZNPETF) is the only Shariah compliant ETF on the PSX which aims to track the Meezan Pakistan Index (MZNPI). The Islamic Index aims to track the performance of top 12 companies with highest average traded value and free-float market capitalisation of KMI30 Index, which only includes 30 shariah compliant stocks.

4. NBP Pakistan Growth Exchange Traded Fund (NBPGETF) aims to track the NBP Pakistan Growth Index (NBPPGI), which is constituted by selecting the top companies of the KSE-100 index based on market capitalisation, liquidity and volume. NBPGETF invests in a diversified portfolio of 15 blue-chip companies across seven sectors. We will explore this ETF in detail in the next section.

5. The JS Momentum Factor ETF (JSMFETF) aims to track the JSMFI index. The JSMFI tracks the performance of stocks which define positive momentum based upon total return performance and value traded over a 30-day time period.

6. Alfalah Consumer Index Exchange Traded Fund (ACIETF) tracks the Alfalah Consumer Index (ACI) which comprises a maximum of 20 consumer focused stocks.

7. HBL Total Treasury Exchange Traded Fund (HBLTETF) is the only debt ETF which aims to track the performance of HBL Total Treasury Index (HBLTTI). This benchmark index is a blend of shortand medium-term government securities issued and/or guaranteed by the government of Pakistan. Among ETFs, it has the largest fund size of Rs 524 million. Because it is the only government debt ETF, it has the lowest risk of all the ETFs.

National Bank of Pakistan Growth Exchange Traded Fund (NBPGETF)

The NBPETF is managed by NBP Fund Management Limited (NBP Funds) a leading Asset Management Company (AMC) of Pakistan. As of January 12, 2023, the market cap of the ETF is Rs 52,458,000 with a NAV of Rs 9.66. The fund has total AUM of above Rs 53 million.

The NAV of the fund is calculated by dividing the value of the net assets of the fund (i.e., the value of its total assets less total liabilities) by the total number of outstanding shares of the fund. The NAV is the stock price of the ETF on the PSX. To check the stock price performance of the fund, take a look at the historical NAV since May of 2022 in the graph.

Looking at the portfolio of the NBP ETF, we can see that it has diversified its investment in 10 blue chip stocks. Blue chip stocks are stocks of well-reputed companies which are popular among investors. Stocks such as ENGRO, OGDC, UBL, and so on are some of the best managed companies in the PSX.

The diversification of stocks is certainly remarkable for the NBP ETF. For stock market investors who don’t like investing in funds, ETFs still have something to offer you. It might not be the worst idea to take cues and try to replicate the basket of stocks of a particular ETF to make your own portfolio of stocks. You’ll have a nice diversified portfolio and what’s even better is that you can avoid the management fee!

To summarise:

NBPGETF December 2022 performance:

According to the fund manager report for the month of December 2022, the fund posted a negative 5.5% return against a negative 5.4% return of NBP index. The rolling 12 months return of the fund was negative 13.5% against the benchmark return of negative 12.5%. And since the launch of the fund on October 06, 2020, the fund has given a positive 0.5% return against the benchmark index return of 2.9%. The NAV was Rs 9.4381 at the end of December.

• ETFs can offer lower operating costs than traditional mutual funds, flexible trading, and greater transparency by disclosing all holdings etc

• An ETF is one way to invest in the stock market without buying individual stocks

• By investing in an ETF, your money is instantly diversified across all of the underlying securities in the basket

• ETFs provide an easy way to diversify across different stocks, commodities, bonds, or other securities in the markets where many ETFs across multiple asset classes exist

We hope this guide to ETFs was helpful. n

Disclaimer: This article is not meant as an investment advice.

Info source: Pakistan Stock Exchange (PSX)

‘Tis the season for a comeback?

After a shambolic showing last year and following a brutal year for startups, Future Fest 2023 came back stronger

By Taimoor Hassan

After a debacle last year that annoyed visitors and the startup folks alike, Future Fest largely pulled off this year’s tech meetup smoothly in a bid to restore its reputation, with the presence of Saudi startups being one of the main highlights of the event.

This year’s event was inaugurated at Lahore’s Expo Center on January 6 by President Arif Alvi, who welcomed the participants and highlighted the investment opportunities that the budding local tech industry has to offer.

The event, which ended on January 8, hosted hundreds of speakers which included CEOs, government officials, and visiting delegates. According to the management of the event, they had 250 speakers and 150 international guests from 15 countries at the event.

This conference also hosted a delegation of Saudi startups and venture capitalists, the first of its sort, who met Pakistani startups and key stakeholders to explore investments, partnerships, acquisitions, and talent recruitment.

The conference featured keynote sessions by prominent people such as Ikram Sehgal, the chairman of Pathfinder Group, and Shafiq Akbar, CEO of Imarat Group of Companies and property portal Graana.

The event also hosted master classes, fireside chats, and panel sessions from industry leaders who talked about diverse subjects ranging from web3, scaling tech, worldview, gaming, storytelling, policy and governance.

An embattled moment

Put this year’s event in its context. The last year has been rough for the startup ecosystem. Between May 4 to May 7, the biggest tech stocks lost nearly $1.3 trillion in value in just three days. Apple lost

$226 billion, Microsoft $190 billion, Amazon $174 billion, Google’s parent company Alphabet lost $125 billion value and Airbnb saw $24 billion of its value slashed. Trillions of dollars worth of company value was wiped out in a matter of days.

Political and constitutional chaos, double-digit inflation, the rising dollar, reserves reaching record lows and talks about the country defaulting on its debt obligations were the highlights of the year. To top it off, Pakistan’s IT sector, which was widely perceived as an engine that would drive the country’s economic growth, posted sluggish development.

There is a fall in the growth rate of Pakistan’s IT export-based remittances and then the startup sector, which had brought in amounts north of $380 million in 2021, saw this growth slashed in 2022. The year ended with a total of $355 million raised in disclosed funding across 57 deals by Pakistan’s startups in 2022, according to data compiled by VC and insights firm i2i Ventures. The last quarter or Q4 of the previous year recorded the lowest amount of funding during the last four years, raising only $15 million according to i2i. This was 78% down, compared to the same quarter last year. Quarter on quarter growth fell consistently last year.

In Q1 of 2022, startups raised $172 million across 22 deals, which fell to $102 million across 15 deals in the next quarter. In Q3 of 2022, startups raised $65 million across 14 deals with the last quarter of the year only accounting for the remaining $15 million out of the total $355 raised during the entire year. Fintech and ecommerce were the top performing sectors in 2022. Ecommerce startups managed to raise the highest amount of funding, raking in $185 million. Notable raises were by Bazaar which announced a $70 million raise, Dastgyr did $37 million whereas Jugnu announced closing a $22.5 million round. On

the fintech side, startups raised $101 million across 15 deals, compared to 13 deals in the ecommerce segment.

The Saudi presence

It was in this context that this year’s Future Fest took place. And despite the nervy times that have arisen for Pakistan’s emerging tech scene, and the shambolic show that was last year’s event, the Future Fest did the only reasonable thing to do in such moments: soldier on. A big boost was received of course by the presence of Saudi startups at the festival that created a degree of excitement that has been short in recent times.

The event hosted delegates from Digital Cooperation Organisation (DCO), a Saudi Arabia headquartered multilateral organisation to promote technology exchange between member countries which include Pakistan, Saudi Arabia, Bahrain, Cyprus, Djibouti, Kuwait, Morocco, Nigeria, Oman, Pakistan, Jordan and Rwanda.

Then the event had the presence of some of the prominent Saudi startups which displayed their digital offerings at the expo. eCommerce platform Salla was there, edtech startup Classera, which is counted as the top edtech startup in Saudi Arabia and broader MENA region, was in presence, besides Riyadh-based fintech startup Hala also in presence at the event.

On the eve of Future Fest 2023, Fahad bin Mansour Al Saud, a member of the Saudi royal family and the co-founder of mobile and web development firm ILSA Interactive, announced in a virtual session the establishment of a dedicated Saudi-Pakistan Tech House to promote greater ease of doing business. The prince, who was expected to be present at the event but could not travel because of concerns around security, further announced new projects for the company creating hundreds of jobs

in Pakistan, Saudi Arabia and globally.

ILSA Interactive employs workforce in Saudi Arabia and in Pakistan. On announcing the establishment of the Saudi - Pakistan Tech House, Prince Fahad said that the house will be headquartered in Riyadh, with its first branch in Lahore.

A Saudi startup founder of Pakistani origin explained that the event was of great help to his startup for showcasing the products, robots and drones, to the audience that met him and he was actually able to showcase and gain interest of investors at the event.

“Overall, this portrayed a positive image of the Pakistani startup community in front of Saudis,” he said. Though the downside was that while Saudi startups were in presence, some of the prominent Pakistani startups were not present. “For instance, Daraz was in absence,” he said. “It would have been great if the event could showcase top Pakistani startups as well to the Saudi visitors.”

The second day of conference and expo also witnessed the signing of an MoU under which Tracking.me, a company that sells Saudi made hardware and software, will be acquiring Telematics Private Limited, a local distributor in Pakistan known for selling Saudi made tracing devices.

Gaper announces a Rs500 million technology fund

One of the highlights of the event was an investment fund launched by a ‘startup’. It’s an unusual move given that the startup itself has not raised any funding for itself yet. Instead, it plans to grow the startup by investing in existing technology services companies, not startups, which are currently facing the brunt of an economic slowdown at home and abroad.

The Rs500 million launched by Lahore-based Gaper.io has among its LPs (limited partners) some of Pakistan’s textiles exporters, leather manufacturers and chemical producers, and some of whom are Stanford and Harvard alumni, and have worked at Google.

Gaper.io, which is an AI-driven marketplace that connects software engineers and businesses, was founded by Mustafa Najoom and Ahmed Muzammil at the start of the COVID pandemic. The company has since bootstrapped and has not raised external funding of its own.

“The main aim of the fund is to facilitate mergers and acquisitions across the

industry which will in turn accelerate growth and increase market visibility for companies involved,” Ahmed Muzammil, co-founder of Gaper.io said.

Instead, it will use cash in this fund to invest in technology services companies, and then use its position as an investor in these companies to bid for IT projects, as a consortium, on the Gaper platform. This will not only help the companies invested in but will also promote the Gaper platform, since Gaper acts as a marketplace for businesses to find engineers for IT projects.

“Pakistani IT companies sometimes lack the scale to bid for big IT projects,” Mustafa Najoom, co-founder at Gaper told Profit. “Being an investor will help form a consortium of IT companies that will collectively make the scale big enough to bid for IT projects that a single company would not be big enough to win.”

Mustafa says that the composition of LPs that have decided to invest in this fund reflects the willingness to invest in IT companies that are not considered startups. The investments from this fund will also go into companies that are profitable and have their income in dollars.

“Empowering service companies that are cash flow positive by giving them a clear path to Pakistan Stock Exchange will not only build trust, but also create a much more investment-positive industry,” said Mustafa Najoom.

Gaper plans to launch this fund under a separate company which will be a private equity setup. The company plans to deploy the Rs500 million Gaper Technology Fund I in 12-18 months, and the move on to Gaper Technology Fund II with a target raise of a few billion rupees.

Furthermore, a roundtable on the problems faced by the eCommerce industry was organised by Bilal Mumtaz, Lahore chapter director Pakistan E-commerce Consortium. Various problems were brought into discussion with Lahore Chamber of Commerce and Industry (LCCI) who, while acknowledging these problems, extended support by agreeing to take it up with the government.

n

“Pakistani IT companies sometimes lack the scale to bid for big IT projects,” Being an investor will help form a consortium of IT companies that will collectively make the scale big enough to bid for IT projects that a single company would not be big enough to win”

Mustafa Najoom, co-founder at Gaper

“The main aim of the fund is to facilitate mergers and acquisitions across the industry which will in turn accelerate growth and increase market visibility for companies involved”

Ahmed Muzammil, co-founder of Gaper.io

By Momina Ashraf and Ariba Shahid

“A

fly landed on my ravioli. I called the waiter to point it out. He took the dish back. Ten minutes later the manager walked in with a fresh plate and repeatedly apologised. I said it’s okay, I understand. We’re in Karachi, flies fly outdoors. He said, ‘No ma’am. This is not Karachi, this is Aylanto,’” said Ayesha Ali, a connoisseur of Karachi’s expensive eateries.

Aylanto, though not a new restaurant, is part of a dizzying trend of new fancy eateries propping up in the country. Each place is trying to outdo the others with its branding and individuality, to stay relevant in this cutthroat market. Gone are the days, when the upper-middle class of Pakistan’s metropolitan cities would go out for a simple pizza, burger or Chinese food. The dining experience is becoming increasingly stratified, unpredictable and, in Fuòco’s words, a “rendition” of European and Italian cuisines.

You have everything from gourmet pizza, if one can ignore the obvious oxymoron present, to mouth-watering Korean restaurants. Such experiments obviously mean good news for the industry. According to a report by the Pakistan Institute of Development Economics (PIDE), the tourism and hospitality industry, of which restaurants are a major player, is rising significantly in Pakistan. In the year 2019, the industry contributed 5.9% to the national GDP and generated 3.8 million jobs and expanded by 3.5% in one year. Although the industry was hit massively by covid lockdowns in 2020, the industry is back to growing, although sluggishly, says the PIDE report.

The (near to) fine-dine experience

Imagine entering a classically contemporary restaurant in an affluent neighbourhood. But as soon as one steps in, there is a seamless disconnect from the hustle and bustle of the city. Soft music, a personal waiter guide and fellow socialites chatting and devouring the meal, the experience is often more exquisite than the meal. The designated waitering staff sets your table and sommeliers and chefs help you decide with the selection of your seven course meal or four – doesn’t always matter. The dishes are oftentimes small and the bill is massive, but you enjoy premium quality and exclusivity in your meal, a quintessentially fine-dine experience - something that is not found in Pakistan.

That’s right. No matter how expensive

the meal is, or how fluently the staff speaks English, no restaurant in Pakistan qualifies as an actual fine-dine restaurant. “There is essentially no fine-dining in Pakistan. Fine-dine restaurants have certain characteristics like the number and training of waitering staff, a culinary school certified chef, the type and arrangement of cutlery. Crockery has to change with each course. Menus have to be printed in a certain way, and definitely not on paper. The closest we have is Okra, but it’s basically a cafe and not a restaurant,” said Arooj Abbas, a chef and restaurant consultant.

However, we do have the second-best options; restaurants which charge typically a bit higher than the average. “Customer perception plays a very big part in a restaurant’s image. Restaurants which charge Rs 3500+ per person with appetisers and drinks are considered fancy here. It’s generally those restaurants that serve a foreign cuisine that you can’t rusticate at home,” added Abbas. That’s what is essentially happening in Pakistan also.

Profit reached out to several restaurants in Karachi, Lahore and Islamabad to understand how they have built the customer perception.

Izakaya is a new sought-after dining experience located in Karachi that has sort of a non-conformist marketing strategy. Instead of attracting more customers, Izakaya is limiting. The restaurant keeps the experience exclusive by offering membership to its clients. Non-members can also visit but have to pay slightly higher than the members. Even the Instagram page is private, with access to only members or those who have visited the restaurant at least once. Upon various visits to Izakaya, Profit learned that the cheapest item on the menu for non-members is for Rs 15,000 per person. For members, there are various rooms available to choose from which makes this experience more private by demarcating it from the regular dinner hall.

This kind of exclusivity from members creates a very particular image in the minds of many visitors. “I am allergic to seafood and

my doctor had me off beef for a few days. The chef made all my courses in chicken for me. One of my friends kept thanking the chef for going out of his way and even told me off for not acting the ‘appropriate way’ with my order specifications,” mentioned Ali, recalling the time she visited Izakaya for a friend’s birthday.

The manager at Pompei, a premium Italian restaurant in Karachi, said that they rely heavily on imported materials such as cheese and herbs. “We never even use canned mushrooms and olives, and always acquire them fresh,” said Abdul Rehman, the manager. “Our customers don’t complain about the price (which is Rs 3000 on average without dessert) because they know what they are having. Our unique, secluded location, great view of British architecture provides an ambiance that no other place does,” he continued. “Because we are a fine dining restaurant we operate mostly on reservations, but we cater walk-ins too.”

Anyone who has frequented Pompei, would know that the place doesn’t get a great

Look, the kind of menu we have here is not an average Pakistani’s cup of tea. When we first opened a lot of customers came in and we would often have dishes being sent back because they ‘were not cooked well’. For example, one of our classic dishes is the aglio e olio pasta. Many people don’t like it, but when foreigners come they love it and come back for it.

Obaid, senior manager at Fuòco

variety of people. It’s the usual group of those who know the place well. “Our fine-dining customers are specific. But our Italian cuisine, which is available for all for walk-ins, makes up for the revenue,” said Rehman.

Fuòco in Islamabad had something similar to say also. “Look, the kind of menu we have here is not an average Pakistani’s cup of tea. When we first opened a lot of customers came in and we would often have dishes being sent back because they ‘were not cooked well’. For example, one of our classic dishes is the aglio e olio pasta. Many people don’t like it, but when foreigners come they love it, and come back for it,” said Obaid, senior manager at Fuòco. “Now our customer base is normally the same 20-30 people who have the kind of exposure from abroad to like and enjoy our

food,” he added.

When asked what their unique selling point is, Obaid mentioned the pasta. “We make our pasta dough ourselves to develop a unique and authentic taste,” he said. However, upon asking Profit got to know that none of their chefs is internationally trained.

Similarly, Gai’a Lahore’s manager Qadeer Hussain said that they import their ingredients, especially the best selling ones such as sushi, and the Wagyu steak too. “See we specialise in Sushi but we are not the same as Wasabi, which has been established way before us. You know why? Because we train our chefs from international chefs. For example, a chef from Dubai came to Pakistan to especially train ours and so did a foreigner chef from Europe,” he added.

Food as a personalised experience

In a country such as Pakistan, there may not be a big audience for an expensive Rs 20,000+ meal, but that’s the whole essence of such a meal; the limitation and exclusivity of it. “Of course, not everyone can afford such a pricey meal. But it’s not just for the rich elite, luxury food is a whole experience. Many times I receive orders from the salaried class who save up for my meals for their birthday or anniversary,” said Haroon Sheikh, a premium home-chef based in Karachi.

Sheikh does something unique in the Pakistani food business. He cooks premium quality multiple course meals, freshly prepared, cooked and served by him at the home of clients. “I change my cutlery and napkins with every meal and buy a new set of crockey when I introduce a new dish. Every meal has to be an experience. I take pre-orders so I have enough time to prepare everything and procure the right ingredients locally or internationally. Sometimes when needed I hire the waitering staff too, but that’s just for assistance, I like to cook and serve myself,” he said. Sheikh was not too keen to talk about the prices of the meals as he believed it would make those who can’t afford it uncomfortable, or even bitter.

But a premium meal also costs a lot.

We never even use canned mushrooms and olives, and always acquire them fresh. Our customers don’t complain about the price (which is Rs 3000 on average without dessert) because they know what they are having. Our unique, secluded location, great view of British architecture provides an ambiance that no other place does.

Abdul Rehman, manager, Pompei

After conversing with multiple caterers, including Fuòco, Sheikh and OY steak, Profit learned that the popular dish premium meal is the Wagyu or Angus steak, each meat cut is imported from Japan or Australia and costs Rs 30,000 - 75,000.

Sheikh was the first one to introduce the medium rare Agnus and Wagyu steak, and also hotpot in Pakistan back in 2015. He said now he’s one of the very few caterers to specialise in truffle and caviar also. Upon insistence he mentioned a conservative number for his meals, “You can say the minimum price is around Rs 15,000 and the maximum is the sky,” he chuckled.

Similarly, Omer Yoon, owner of OY Steaks in Islamabad said that he imports the Wagyu steak on pre-orders only. The meal ends up costing around Rs 60,000 for one person. “This is the most pricey item in my menu and I have received only five orders till now since the last one-and-half year of doing business,” he said. An average meal at OY steak costs around Rs 3,500-5,000. He mentioned that the most expensive ingredient is the meat which makes up most of the cost. That’s why Yoon also only takes pre-orders and procures the meat the very day it is cooked.

Like Sheikh, Yoon also personally cooks and serves the meal. For him, it’s more a passion than a job. “It’s not a steakhouse, but a love story,” he said. Yoon’s restaurant is not even close to a fine-dine experience, he agreed. It’s not well maintained or decorated, but that’s because he just started out and isn’t making a surplus, he explained. His plan for next year, however, is focusing on the ambiance and making it a complete experience.

The supply, demand and the impact of economic crisis

Since many fancy restaurants depend on imported items, there has been difficulty in production since the economic crisis started. “We have temporarily removed the Wagyu steak off our menus because we can’t import it from our usual sources, and the other options would be too costly for us and ultimately for the customer also,” said Fuòco’s manager, where the steak was usually served on simple walk-ins.

However, in a conversation with Ammar Khan, economist and founder of Karachi Food Diary, Profit learned about the city’s process of acquiring items. “A lot of ingredients, and even protein is smuggled in through an informal network of smugglers, popularly known as khepiyas. Such

There is essentially no fine-dine restaurant in Pakistan. Fine-dine restaurants have certain characteristics like the number and training of waitering staff, a culinary school certified chef, the type and arrangement of cutlery. Crockery has to change with each course. Menus have to be printed in a certain way, and definitely not on paper. The closest we have is Okra, but it’s basically a cafe and not a restaurant

Arooj Abbas, chef and restaurant consultant

a network ensures a steady supply chain of quality ingredients,” said Khan.

Pompei is doing something similar also. “The import ban has impacted the business terribly. We haven’t had mushrooms in months so we have stopped serving stuffed mushrooms. But for other items we try to seek alternate vendors and avenues, and that significantly increases the cost. We aimed to change the prices on the menu just once a year but now that’s not sustainable as we have to increase them more often,” explained Rehman.

“We import Wagyu steak from Australia, although it’s a specialised meat of Japan, but for us it’s easier to procure from Australia,” added Hussain from Gai’a.

During times of economic crisis, one would assume the demand of premium products, including expensive food to generally decrease. But Sheikh had something different to say. He said his sales had not really dropped. In fact, the demand for fine dining has increased since he first started in 2015. He said that because his main customer base is the business community, price hikes don’t really impact them as much.

Similarly, Yoon joked that “black money kinda people come here,” pointing out that his priciest steak, the Wagyu, can only be afforded by a certain class. So the concern of the import ban or inflation doesn’t have a drastic impact on the business as such. Also, since he already operates on a small scale and procures essentially raw materials only upon order, there isn’t much sunk cost.

Capital B

uilding this kind of eatery cannot be done from scratch. It requires a huge investment, and a thriving social and cultural capital. An established restaurant consultant who doesn’t wish to be named commented that, “most of the fancy restaurant owners in the three big cities of Pakistan come from wealthy families. They are young people who are well travelled, and try to recreate their experience in Pakistan, but not all of them have business acumen to run a fine-dine eatery.”

Sheikh said that he was only able to start and run the business because it’s his hobby, a side thing. Sheikh’s main source of income is his textile business. Being part of an establishment business community brings in major clients for his home-chef gig also.

Similarly, Obaid said that the owner of Fuoco is based outside of Pakistan as he has many other businesses to look after also. The manager, who has had more than a decade of experience in various restaurants, mentioned that a lot of the items on the menu were introduced for the first time in the city. “The owner is specific about the menu and decides each item himself, perhaps based on what he personally liked from abroad,” he said.

The mushrooming of restaurants and the increasing culture of eating out is creating another element of class demarcation in Pakistan. As an Izakaya customer mentioned, “there is no point of going to Izakaya if you don’t get a picture taken with the blue door,” confirming that status and prestige is all about showing, not telling.

Consumers now look for something more than just food, they want a complete experience, one that includes being waited on, devouring the sumptuousness that is placed before them, feeling special and then sharing it on their social media. Because if you don’t show it, did it really happen? This is where the expensive eateries, and the burgeoning need to provide a unique experience comes in. n

It’s not a steakhouse, but a love story.

Omer Yoon, owner of OY Steaks