Profit E-Magazine Issue 240

CON TENTS

10

10 Uncompetitive and short in supply. The tragic and avoidable undoing of Pakistan’s cotton crop

19

19 Pakistan Railways looks to monetise its assets, but will advertisers bite?

27

27 Futafut – Pakistan’s latest fintech gamble

32 Flipping the script

Publishing Editor: Babar Nizami - Joint Editor: Yousaf Nizami

Senior Editors: Abdullah Niazi I Sabina Qazi

Assistant Editor: Momina Ashraf

Editor Multimedia: Umar Aziz - Video Editors: Talha Farooqi I Fawad Shakeel

Reporters: Taimoor Hassan l Shahab Omer l Ghulam Abbass l Ahmad Ahmadani l Muhammad Raafay Khan

Shehzad Paracha l Aziz Buneri | Daniyal Ahmad | Asad Kamran l Shahnawaz Ali l Noor Bakht l Nisma Riaz

Regional Heads of Marketing: Mudassir Alam (Khi) | Zufiqar Butt (Lhe) | Malik Israr (Isb)

Business, Economic & Financial news by 'Pakistan Today'

Contact: profit@pakistantoday.com.pk

By Abdullah Niazi

This is the story of how one of Pakistan’s most valuable crops was destroyed in less than 15 years. According to data released by the Pakistan Cotton Growers Association (PCGA) last week, Pakistan’s cotton output has now fallen to its lowest levels in the past 40 years. To those that have been observing the cotton industry for the past few years, the massive dip does not come as a surprise.

Over the past two decades, the cotton crop in Pakistan has fallen out of demand, has become internationally uncompetitive, and output has fallen by a whopping 65% from 14 million bales being produced in 2005 to 4.9 million bales being produced in 2023.

Once the darling of farmers and agriculturalists, the area dedicated to cotton farming has also been shrinking significantly since the late 2000s while competitor countries like Egypt have increased the area they are dedicating to growing cotton. Other than a brief recovery in 2022, when output increased only because of an irregularity of international trade created by the Covid-19 pandemic, cotton has continued to fall out of favour and the results have meant a complete shift in Pakistan’s exports.

The biggest impact other than on farmers has been on Pakistan’s textile industry. In the secondary sector, the cotton-based textile industries have a 21% share in largescale manufacturing and consequently a 2% share in the national GDP. With cotton production falling and area-under-yield shrinking as well, the textile industry has

increasingly had to depend on importing cotton. Last year, in some ways, was actually an opportunity to bolster and revive cotton production in the country. The question is whether that opportunity has been squandered or is there still time yet?

Cotton on the ropes

The story of cotton in Pakistan has been that of an opportunity squandered. Between 2005 and 2020, Pakistan’s production of cotton declined by nearly 35%, from nearly 14 million bales in 2005 to just over 9 million bales in 2020.It further fell to 5.6 million bales in 2021, before making a brief recovery at 7.7 million bales in 2022, and has now fallen to a paltry 4.9 million bales in 2023. This marks an overall decline of 65% in the past 18 years.

The data speaks for itself. Zoom in to cotton production over the past few years and it is a sordid tale. As recently as 2017, Pakistan’s cotton production was high, clocking in at over 10 million bales for the year. The output actually rose by a million bales to 11 million in 2018, before settling again at just over 9 million bales in 2019. The next two years saw a decline. In 2020, only 8 million bales were recorded before a sharp fall to 5.6 million bales in 2021.

{Note: There is no reliable tabulation for how much cotton is produced in the country by government sources. However, the Pakistan Cotton Ginners Association (PCGA) keeps count of how many bales of cotton arrive at ginning factories for processing. That is why the country’s cotton output is calculated in bales rather than

by weight. For context, a single bale is 170 kilograms.}

Farmers over the past decade have abandoned cotton in favour of more profitable crops like sugarcane. In 1991, cotton was grown on around 6.6 million acres of land all over Pakistan. It grew to a peak area-under-cultivation level of 7.9 million acres in 2005 but stood at a mere 6.2 million in 2020 showing a serious backwards trend. Changing climatic conditions have made the cotton seed in Pakistan less resistant and more likely to fail — which means growing it has become a bad business decision for a number of agriculturalists.

So why did farmers abandon the cotton crop in droves? Especially at a time when countries like Egypt and Vietnam with whom Pakistan used to compete have only increased the area they grow cotton on? The falling stock of cotton goes back to 2008 — when the energy crisis hit Pakistan and the textile industry was jolted.

Impact on the textile industry

Cotton was a major cash crop in Pakistan until 2008. In fact, in 2005, cotton became one of the only crops in Pakistan for which GMO seeds were introduced. According to a 2021 report of the International Food Policy Research Institute (IFPRI), raw cotton consumption grew at an annual growth rate of 7% between 1982 and 2008 to reach 15.6 million bales in 2007-08 in Pakistan.

However, between 2007-8 Pakistan was hit by the global recession. The textile

industry faced challenges due to high energy costs, rupee depreciation vis-à-vis the US $ and other currencies, and a high cost of doing business. As a result, there was a reduction in the number of textile mills operating in the country from about 450 units in 2009 to 400 units in 2019. This decrease has simultaneously seen the domestic demand for cotton dip in the country.

Farmers and the textile industry, up until the 2008 financial crisis, had been dependent on each other. Farmers would produce the crop without the fear that demand would fall, and the government did not need to announce a support price either. But when mills started shutting down, suddenly there was more cotton and not enough buyers. After a harsh couple of years, farmers also began going back on cotton and its price fell, resulting in production decreasing. As a result, exports were also affected.

At the same time, since farmers were losing interest in cotton, very little cotton research was done in the country. This meant that other cotton producing countries were able to use the latest seed technology

and science to increase their yield while Pakistan fell behind. Here is a sobering statistic. Two decades ago, Pakistan’s cotton was in demand globally. However over those 20 years, countries such as Bangladesh, Vietnam and Cambodia have all used better growing techniques to get ahead of Pakistan. In 2003, when Pakistan’s textile exports were $8.3 billion, Vietnam’s textile exports were $3.87 billion, Bangladesh’s were at $5.5 billion. Now Vietnam is at $36.68 billion and Bangladesh is at $40.96 billion, while Pakistan is struggling to hit $25.3 billion in 2020. The explanations behind this are multiple. Pakistan needs to increase not just the amount of cotton it produces, but also improve the quality of the cotton crop. Currently, Pakistani cotton is considered second grade, and if the crop quality is improved there would be greater demand at a greater price. More importantly, by improving the crop, the entire textile industry will benefit since the quality of all products will improve at source.

The 2022 anomaly

But all of this changed last year. The cotton crop that was sown in Pakistan in 2021 and was harvested in 2022 benefited from a peculiarity of international trade caused by Covid-19 that resulted in a bumper crop of cotton.

You see, cotton has been on the decline since 2008, as we have seen. As mentioned earlier in the story, between 2015 and 2020, Pakistan’s production of cotton only declined. This led to the textile industry claiming that they would thrive on imported cotton instead of depending on local cotton. This worked out especially since the cotton Pakistan produced was second grade.

But when the pandemic hit, everything changed and the local industry found that importing cotton was no longer an option. International cotton prices (in rupee terms) during the last year have gone up by almost 30% — from PKR 12,606 on July 1, 2021, to

There has been a marked increase in per hectare yield in some areas which is very encouraging, however, in some areas, decreasing yields have also been observed, and overall the scale has barely been budged

Raza Baqir, the secretary general of the All Pakistan Textile Mills Association (APTMA)

PKR 18,259 by mid-February this year. The ever-dwindling value of the rupee not only doubled the impact of import for Pakistani millers but also made it next to impossible to calculate the final cost of production, rendering import commercially non-feasible for the industry.

On top of this, there were shipping concerns. A report in Dawn from March 2022 chronicled how it takes more than 120 days to ship cotton to Pakistan these days, against the 30-day hiatus in pre-Covid times. These circumstances deflated the textile industry’s claim that it could thrive, even survive, on imported cotton and forced it to value local crops, thus setting the stage for the cotton revival in the country.

Since the impact of Covid was comparatively milder on Pakistan, its industry started almost eight months ahead of the rest of the world and so the entire capacity was booked within weeks. This sent the industry in a mad chase for cotton, hence improving local prices, explains Arshad.

A big part, simultaneously, was that just a year before, Pakistan had started to focus on improved cotton production methods. This is what allowed it to cover the gap for the industry when importing cotton was no longer feasible, the Dawn report adds. “In 2021, acreage fell by 17% in Punjab — from 3.8 million acres in 2020 to 3.1m last year — but production fell by only 2%.”

This means that average yield increased over time. The report quotes Dr Saghir Ahmad, director of the Central Cotton Research Institute (Multan), as saying, “the average yield jumped from 15.68 maunds in 2020 to 19.62 maunds per acre in Punjab in 2021.

In Sindh, it was even better; 30 maunds per acre, pushing the national average to 25 maunds per acre. This better production, along with a massive rise in world prices, has now set the stage for acreage expansion this year.”

Why it didn’t translate to this year

This is what it comes down to. Last year, farmers saw an opportunity where cotton demand was high and sowed more of it. As a result, outputs rose but the core problems were not addressed. Even last year, the textile industry has stayed largely unimpressed with the increase in output.

They chalked the increase up to special circumstances and still relied upon imports to run their operations. According to them, local cotton does have the potential to cover local demand but unless solid steps are taken there will be no point to it.

“This has not been a remarkable increase,” says Raza Baqir, the secretary general of the All Pakistan Textile Mills Association (APTMA). “There has been a marked increase in per hectare yield in some areas which is very encouraging, however, in some areas, decreasing yields have also been observed, and overall the scale has barely been budged. We still need to import nearly half of our quantity from abroad, which with rising prices is difficult. We have observed a consistent improvement since at least 2019, but overall it has to be said it was all very marginal.”

The key here is the minor improvement that has been seen over the past three years.

Before this, for nearly a decade, Pakistan’s cotton crop suffered from multiple ailments. The narrow genetic base of cotton germplasm which are prone to insect and disease, along with reliance of Pakistan on a back-crossed 17 year old biotechnology have resulted in low yield per area. Lack of quality and advanced gene technology is a serious issue that has plagued cotton productivity in Pakistan. The attack of pests such as the locust attacks in the past couple of years and other consequences of climate change have all caused issues.

In 2022, a peculiarity of the international supply chain made a case for Pakistani cottons. Just as the problems of this crop have been listed, its solutions are also readily available. Investment is required in cotton research.

More importantly, this year the price of cotton was well above the support price of PKR 5000 per bale (40KG) but the early announcement of this support price gave farmers the confidence to pursue this crop. With all of these considerations, Pakistan can once again go back to its cotton glory days, and perhaps bolster its textile industry and exports along the way.

This year has only proven the textile industry right —- that they were correct not to feel too hopeful of the brief gains made by Pakistani cotton. This year’s figures of 4.9 million bales means the textile industry will have to import around 10 million bales to satiate its annual hunger for 15 million bales. Already the textile industry has been facing issues because of severe import restrictions, with mill consumption falling to 8.8m bales, the lowest in over 20 years.

With imports in the country facing the chopping block because of the ongoing economic crisis, 2022 was an ideal time to encourage farmers to continue to grow cotton and encourage the textile industry to invest in local cotton. However, this year’s output indicates that the stocks of the cotton crop are likely to fall further. Only time will tell how low they will go. n

Cotton was a major cash crop in Pakistan until 2008. In fact, in 2005, cotton became one of the only crops in Pakistan for which GMO seeds were introduced. According to a 2021 report of the International Food Policy Research Institute (IFPRI), raw cotton consumption grew at an annual growth rate of 7% between 1982 and 2008 to reach 15.6 million bales in 2007-08 in Pakistan

The Lahore Railway Station is a majestic and awe-inspiring structure, one that exudes an air of grandeur and history. It is a living, breathing entity that holds within it the secrets and memories of Lahore’s past. The station’s magnificent Mughal and Gothic Revival architectural styles serve as a reminder of its soul, a nod to its colonial history and the era of the British Raj. As you step inside, you are transported back in time, as if the station itself is a portal to the past. The echoes of footsteps from those who have come before you reverberate through the halls, and the air is thick with the fragrance of bygone eras.

By Daniyal Ahmad

Gandhi and his band of activists once marched through its halls, their calls for freedom ringing out loud and clear against the oppressive 1919 Rowlatt Act. The station played a pivotal role in the violent birth of our nation, serving as a gateway for millions of refugees fleeing the trauma of partition; it witnessed both the joys and sorrows of a people fighting for independence with a front-row seat to the separation of India and Pakistan in 1947.

The signs of neglect and decay however, have become increasingly pronounced. The once-grand walls, with their ornate carvings and intricate stonework, now bear the scars of time and the indifference of those in charge. Cracks and missing tiles pockmark their surfaces, while layers of grime, peeling paint, and water stains cover every inch. The columns and archways, which were once adorned with the finest details, are now a shadow of their former selves, barely visible under layers of dirt and neglect. The station seems to have been left to fend for itself against the ravages of time and the chaotic streets outside.

A lack of investment, alleged corruption, and general mismanagement have led to a decline in services and passenger numbers.

However, this might be about to change as Pakistan Railways looks to entice advertisers with their wares. The aim is to monetise existing assets in order to resurrect the national railway service. The question is, what’s the courtship that Pakistan Railways has planned and will advertisers play ball? Profit looks to explore exactly that.

What’s on offer?

“Advertisers will have access to the physical premise of the Lahore Railway Station. They will have access to the parking area, platforms, staircases, bridges, and other infrastructure at the Lahore Railway Station,” says Najam Saeed, Chief Executive Officer of Railway Constructions Pakistan Limited (RAILCOP). “Furthermore, two trains will also be available for advertisers to use. They will be allowed to utilise the space available

inside the trains, and also wrap the exterior of the train too. Finally, we will also float various railway crossings/phataks alongside some other properties owned by the Pakistan Railways across Lahore,” Saeed continues.

“It’s a new medium of advertising altogether,” muses Saeed. “While television channels are limited to selling minutes, we have more to offer. We can sell minutes on our in-train infotainment systems, but we can also offer advertisers feet and inches. Advertisers can showcase their products and services in a variety of creative ways, using the space we have available to sell to advertisers,” Saeed adds.

For anyone wondering as to why Profit did not reach out to Pakistan Railways itself. Well, we did. Profit spoke to Naeem Sadiq Sheikh, Chief Executive Officer of the Pakistan Railways, who redirected us to RAILCOP. RAILCOP is a subsidiary of Pakistan Railways spearheading the endeavour. Back to the fun now, why is Pakistan Railways doing this?

Why is Pakistan Railways doing this?

The answer to this is very simple; Pakistan Railways does not have a lot of money, but it does have a lot of land.

According to audits conducted by the Office of the Auditor General of Pakistan, Pakistan Railways has experienced financial losses every year from FY 2010-2011 to FY 2020-21. Its revenue has consistently been able to cover only half of its expenditure bill, with the amount rising from 46% of expenses in FY 2010-2011 to just 51% in FY 2020-2021. The average annual loss during this period was Rs 34 billion.

Pakistan Railways is, evidently, broke. Its CEO believes advertising is a possible much-needed fresh revenue stream. Pakistan Railways has 168,500 acres of land across Pakistan to be precise, according to the aforementioned latest audit report. If this pilot project of theirs works out, then they could potentially generate a lot of revenue.

There’s also another monetary aspect to

this that the Railways is looking at, and that is possibly outsourcing part of, if not the entire, cost of maintaining their existing infrastructure. The thinking behind this is that brands buying the variety of spaces on offer for advertising will have an incentive to keep them well-maintained to get the most out of them.

“Effective branding can enhance the aesthetic appeal of infrastructure if implemented wisely. Additionally, the areas that display advertising are more likely to be well-maintained, as companies avoid advertising in unappealing locations,” explains Saeed in an interview with Profit. “There are numerous damaged railway crossings throughout Lahore without any service guards present. Similarly, many high-traffic areas across Pakistan have similar crossings that could provide valuable brand visibility. By utilising these crossings for advertising, revenue will be generated to maintain and hire staff for these locations - either by the Railways or even the brand themselves,” adds Saeed.

“Advertising always benefits infrastructure. The sponsors of the Pakistan Cricket Board (PCB), and the Pakistan Super League (PSL) pay for the super league to happen. Right?,” explains Atiya Zaidi, Managing Director & Executive Creative Director at BBDO. However, as Zaidi points out, these are clearly delineated as part of the contract. Whether the Railways can force through agreements such as these is debatable.

“Advertising enables entities to do the things they want to do. In the long-run, the advertising earnings can be used to improve the Railways’ infrastructure and maybe benefit Pakistan as a whole,” Zaidi adds.

But can the Railways actually sway the agencies that place the ads?

What do advertisers make of this?

reative design in mass transport or mass transit vehicles such as buses and subways has always existed. No matter how digital we become, subways and trains limit

It’s a new medium of advertising altogether,” muses Saeed. “While television channels are limited to selling minutes, we have more to offer. We can sell minutes on our in-train infotainment systems, but we can also offer advertisers feet and inches

Najam Saeed, Chief Executive Officer of Railway Constructions Pakistan Limited (RAILCOP)

phone connectivity. While the world is moving towards digital, out-of-home advertising at train, railway, tube, and bus stations, as well as inside buses, will always remain effective because it targets a captive audience,” Zaidi explains.

“It’s like advertising on a plane. Passengers can’t exit the vehicle, and their phones don’t work, so they’re more likely to pay attention to the advertisements. In terms of getting eyeballs, it is always a good investment,” Zaidi adds.“It’s a very good opportunity because there are millions (28.24 million in FY 2020-21, to be exact) of commuters that use Pakistan Railways,” Agha Zohaib, Managing Director at Mindshare, tells Profit.

“It’s a great thing on paper. They should have done this a long time ago, but this is not where the buck stops. They have to take measures to make sure that they can sustain it,” says Saad Khalique, Director of Operations at Orient McCann. “If they simply collect the mobile numbers and/or email addresses of their passengers, or implement a radio frequency

identification (RFID) system in the ticketing that links to the customers’ phones, it would open up new avenues for agencies. They could engage in remarketing campaigns and better connect with passengers as potential customers,” Khalique suggests.

According to Zohaib, there are many benefits to using railway platforms for advertising beyond branding. “It’s a good opportunity, not just from a branding perspective, but also for brands that want to engage with customers one-on-one. There’s the potential to move beyond static billboards and incorporate video or audio elements, or even conduct activation activities,” he explains.

“In addition, the closed environment of the train bogey presents unique opportunities for conducting research and gathering feedback. Brands could more easily entice people to give feedback in this setting, and companies like telecommunication providers could potentially offer WiFi on the bogeys to conduct speed tests for their devices,” Zohaib suggests.

“It opens up new opportunities for creativity as well. There are a lot of companies that operate across the country, and you’re on that journey as a potential customer right?,” says Zaidi. “It is an exciting medium for sure. However, the key question will be what the return on investment (ROI) will be for the brands that do decide to invest. Another question that the Railway will have to answer is as to who will undertake the cost of setting up the requisite advertising infrastructure,” adds Zaidi.

This is where our positives end. Let’s start with the latter of the two concerns first.

The devil is in the contractual details

“Alot of the time brands get slack for their out-of-home advertising such as billboards collapsing,” muses Zaidi. “That’s not the brand’s fault, but rather the fault of the company that instals the structure sporting the

Creative design in mass transport or mass transit vehicles such as buses and subways has always existed. No matter how digital we become, subways and trains limit phone connectivity. While the world is moving towards digital, out-of-home advertising at train, railway, tube, and bus stations, as well as inside buses, will always remain effective because it targets a captive audience

Atiya Zaidi, Managing Director & Executive Creative Director at BBDO

advert,” she adds.

“Advertising in this manner has never been attempted before, correct? Therefore, it will be necessary to install the necessary infrastructure not only at the stations but also inside the trains and anywhere else the Railway wishes to promote brands. As these are outdoor trains, it’s not possible to simply paste advertisements on the tunnel walls like in indoor tube stations. Instead, we’ll require outdoor billboards. This infrastructure incurs a cost, and safety is a significant responsibility that must be addressed. These are questions that will need to be worked out between the brands and the Railways,” Zaidi continues.

Depending on the agreement that the Railways sign with their advertisers, they may end up incurring additional expenses to get their advertising initiative rolling. This detail is crucial as it will determine whether the Railways will have to bear the cost of maintaining aesthetically pleasing areas where

branding will be displayed. Saeed’s assessment that advertisers prefer attractive areas is accurate, but it’s important to note that the upkeep of such areas comes at a cost. The responsibility of bearing this cost will be outlined in the fine print of the agreement.

“Consider the People’s Bus Service in Karachi. Brands wrap their advertisements around these buses because they are aesthetically pleasing, air-conditioned, and well-maintained. As long as the buses remain in good condition, the brands will continue to use them as a platform. However, if the quality of the buses declines, brands will withdraw their advertisements from them,” Khalique explains. “It’s the same for the Railways. As long as they provide quality infrastructure, brands will continue to allocate their advertising expenditure and vice versa,” he adds.

Now let’s address the other issue that Zaidi raises - the elephant in the room: are the brands that media agencies represent interest-

ed in participating in this Railway initiative?”

Convincing the actual brands to place their advertisements

“We’re always looking for mass media options. The Railways hasn’t been explored in the past so we will have to test its effectiveness, but I believe there’s appetite for this amongst brands,” says Zohaib. Zohaib’s hesitance is natural given an initiative as nascent as this.

Meanwhile, Khalique acknowledges that the initiative seems promising on paper and says, “The assumption is that it works in other parts of the world so it will work for us too. The world is making money through this, so should we,”. Zaidi, however, puts the dilemma aptly. The primary question pertains to who

We’re always looking for mass media options. The Railways hasn’t been explored in the past so we will have to test its effectiveness, but I believe there’s appetite for this amongst brands

Agha Zohaib, Managing Director at Mindshare

the companies deal with from Pakistan Railways; their competence and authenticity will determine the confidence brands have in this initiative. The Railways will need to deliver the return on investment (ROI) they promise companies who partake in this,”.

Saeed opines on the matter by telling Profit that, “Advertising initiatives have never been undertaken in a scientific method by the Railways before,”. He promises that there is a method to the madness. What do we mean?

Shooting darts in the dark?

Saeed used the word scientific. It’s not a slip of tongue, its use is deliberate. That is because the ROI can be calculated in-advance.

“Companies will always conduct a certain ROI assessment in terms of eyeballs. For out-of-home advertisements, it’s usually the number of people that see the advertisement, the traffic where the advertisement has been placed, etc. This will always be the question that brands will ask especially for mediums

“Since these carriages are unlikely to be seen by customers of corporations whose ads we’ll be placing, it is crucial that our data set is solid. Our measurements must be transparent and intensive,” Khalique adds.

Saeed acknowledges that the Railways does not have immediate data on hand to present, “Customer behaviour is an entire world on its own. The need of the hour for us is to see how many passengers we have, and subsequently how many eyeballs we can attract,” he says. “This is a pilot project. We can collect and analyse more data as required, going forward. There will be innovations based on the learnings that we obtain once it gets rolling. The important thing is to get it off the ground for now,” Saeed adds.

Whether the Railways’ learnings will translate into tangible improvements within a year is debatable. “In my opinion, governmental organisations are generally bureaucratic and slow. If the Railways’ plans are as ambitious as they claim, they should have the means to implement them,” Zohaib opines. “Governmental organisations have a top-down approach. If the person at the top wants it done, everything

noted that the current Federal Minister of Railways, Khwaja Saad Rafique, in his address, acknowledged that the previous initiative failed due to a lack of professional expertise in branding. He added that the Minister is now confident that the necessary expertise is available to make the current project a success.

Yet, there remains a concern about the timing of the project. Saad Rafique, was also in charge of the previous initiative. With the political turmoil that has plagued Pakistan, there is uncertainty about what would happen to the project if he were to lose his position.

“Advertising for any government in Pakistan carries a lot of political innuendos, which brands generally prefer to avoid. No brand wants to be involved in a political conflict. They don’t want to take sides, especially in Pakistan. While brands may do so internationally, that is not the case for brands in Pakistan,” Zaidi opines on the matter. Zohaib, and Khalique share the same reservations on the matter.

such as transit,” says Zaidi

According to Saeed through the Lahore Railway Station, Pakistan Railways aims to cater to an “accumulated 150,000 personnel per day consisting of passengers departing, arriving, and railway station visitors,”.

“The biggest challenge however will be collecting data on the rail carriages. While data for other infrastructure provided by the railways can be corroborated with third parties, this cannot. Pakistan Railways operates primarily intra-city, meaning that the rail carriages will pass through low-population-density areas in the suburbs. Consequently, very few people will see the ads we place, and even those who do may not have the purchasing power to act on the advertisement,” explains Khalique.

will be done,” remarks Khalique. However, the opposite is also true.

Navigating the current political rigmarole

Pakistan Railways has attempted to monetize its assets through advertising in the past. However, a 2014 pilot project that offered branding opportunities to companies on the Tezgam, Khyber Mail, and Awaam Express trains, such as on seat covers, internal walls, and toilets, failed to take off, and all plans for a revival had remained dormant.

Saeed, in a conversation with Profit,

Although Saeed is optimistic that the railway’s gains from the advertising initiative will garner bipartisan support, advertisers are understandably cautious about accepting such claims at face value. “While Pakistan’s bureaucracy is well-equipped to ensure the project’s long-term viability and make necessary improvements over time, we cannot ignore the political pressures that come with their roles,” Khalique adds.

Additionally, the red tape and general inefficiency that plagues public sector enterprises makes for a difficult and time consuming execution.

The Railways’ upcoming pilot program is a gamble, and it’s anyone’s guess whether they’ll learn from it and introduce the incremental improvements needed. While brands may be tempted to support this initiative out of a sense of national pride, financial viability is the key to its long-term success. At the end of the day, ROI - not patriotism - determines the flow of capital. Without a solid commercial foundation, this passion project could be nothing more than a momentary burst of excitement, fizzling out into obscurity. n

It’s a great thing on paper. They should have done this a long time ago, but this is not where the buck stops. They have to take measures to make sure that they can sustain it

Saad Khalique, Director of Operations at Orient McCann

For every year from FY 2010-11 to FY 2020-21 Pakistan Railways has averaged a loss of Rs 34 billion per year for the aforementioned duration.

Pakistan’s latest fintech gamble

There is hope still for Pakistan’s FinTech industry

By Nisma Riaz

There’s a new fintech claimant in town, and it has a single-track focus: to make carrying and managing cash as easy as possible. An online digital marketplace pitching themselves to micro, small and medium sized enterprises (MSMEs), Fatafut wants to make life easier for everyone from retailers and restaurants to home-based and women-owned businesses. Essentially, it functions as a shopping app, offering B2B2C services to promote a digital and documented economic culture in Pakistan.

“Futafut fosters a culture of digitised transactions by supporting digital payments on its platform, freeing the customer from the hassle of carrying and managing cash. With our verified riders, we provide a level of trust to our customers that is unparalleled,” says the company’s Co-Founder & CEO Imad Uddin Chishti. But in a saturated market and in the current inflationary environment, is it a good idea?

Why Fatafut and why now?

Pakistan’s digital market ecosystem has been steadily growing, with several new players entering the space over the last few years. This has not only resulted in greater competition for existing digital retailers and markets but also reduced the share of the pie each player can grab.

So, what explains Futafut’s need to enter an already saturated market, especially during such inflationary times?

According to the Pakistan Bureau of Statistics (PBS), CPI inflation General increased to 27.6% on a year-on-year basis in Jan 2023 compared to an increase of 24.5% in the previous month and 13.0% in Jan 2022. On a month-onmonth basis, it increased to 2.9% in Jan 2023 compared to an increase of 0.5% in the previous month and an increase of 0.4% in Jan 2022.

FINANCIAL TECHNOLOGY

When the country is experiencing one of the highest calculated rates of inflation in its almost eight decades of existence, a fair question to ask would be: does such skyrocketing inflation not depress consumer spending?

However, this does not negate the tough competition between digital marketplace applications and websites. How, then, does Futafut set itself apart from others?

Firstly, it is the decades of experience working with large consulting firms, banks, holding companies, telecoms, and Fintechs that Chishti brings to the table. As the founding member and project manager for the launch of Easypaisa in Pakistan, as well as being one of the founding members and project manager for Tameer Microfinance Bank, Chishsti has become somewhat of an expert in managing money through tech.

Futafut does not only provide grocery services or food delivery, like other similar apps but has a wide portfolio of services. “We have an online retail store and food delivery service, yes, but that is not all. We offer delivery services, like Bykea, as well as connecting remittance senders to their families in Pakistan, making the money transferring and receiving process easier, smoother, and hassle-free.”

They have three separate apps called Futafut Premium, Rider, and Retailer. The names make it pretty self-explanatory what services they offer, but what is the reasoning? “The role each service plays is quite different. It can be confusing for users to navigate through the options, especially when they are so unrelated,” claims Chishti. “Apart from the services not being linked, it is also a technical nightmare to manage all three together in one app, when each separate service also has several categories within them. The traffic on the app alone would make it extremely slow for the customer and cause problems at the backend, as well.

Moreover, Futafut wants to create synergies and partnerships with FMCGs, banks, retailers and others to assist with their services, as well as for data sharing that helps these entities conduct more accurate market research.

A strictly digital payment model

Most B2B marketplaces offer a combination of payment methods, including both virtual and physical transactions, such as online payments, as well as cash on delivery. Meanwhile, Futafut has a strictly digital payment model.

Why?

“It’s our strategic and business decision to only support digital payment methods, in order to promote a culture of digitisation in Pakistan and to free customers from the hassle of carrying and managing cash,” explains Chishti. However, there are several modes of online transactions that customers can use. “Our customers can pay for their purchases using various digital payment options, such as credit/debit cards, mobile wallets, and online banking. This makes the payment process convenient and secure for our customers.”

Using cash has increasingly become a hassle, not only in terms of managing physical currency, but also for keeping track of and documenting when and where the money is coming. Digital transactions enable stakeholders in circumventing security issues that come with cash payments.

“Cash on delivery (COD) is the dominant mode of transaction for most e-commerce markets that does not come without its challenges.” Chishti said. He explained how the transactional costs and risks, such as scamming and fraud, along with long delays in payments to vendors and other parties involved with cash payments is a larger issue that Futafut aims to address.

So, Futafut essentially aims to solve cash flow issues for many businesses, making transactions quicker, safer and avoiding delays that are likely to happen with cash payments. “MSMEs get equal benefits from digital payments. Financial reconciliation and settlements are very cumbersome and tedious tasks when you use Cash on Delivery. Most merchants receive inflows of cash once or twice a month at most

but with digital payments, there is no such limitation. It also allows us to credit score the merchants and offer digital loans for the purchase of inventory.”

“Moreover, we have a maximum of three to four day payment schedule to our retailers and we are working on mechanics to bring it down to T1 (payments completed within one day).” An industry source told Profit that retailers receive payments after 10 or more days because it goes from the riders, to the closed hub, from there to the bank, then the app’s office or station, which is a long reconciliation chain having several delays. Daraz takes over 20-25 days to pay their retailers and vendors, inhibiting them from reinvesting that money for almost a month.”

Even though this strategy sets them apart from their competitors, they lose out on a considerable market share by limiting themselves to digital payments.

Chishti defends this by explaining why consumers would opt for the Futafut Prime app over competitors. He elaborated upon a few of these by disclosing how, “We (Futafut) provide a financially secure platform, which is important for customers, who value transparency and security when making transactions. We believe that cash is the enemy of digitization, hence our app only supports digital payment methods, ensuring a secure payment process.”

“Yes, we will lose out on customers, however, the ones we have will be satisfied and loyal due to the trust we build at Futafut. This satisfaction and the word of mouth will do the rest.”

Futafut also claims to tackle other issues and address gaps in the market, relating to ethical problems by introducing a digital-only transaction mode. “The value chain of COD is so long and it involves several stakeholders, like the retailer, rider and customer. This slows down not just money transferring, but also makes crisis management and communication difficult.”

“Customers, after getting scammed so often, have now realised that with COD they have an upper-hand. Futafut focuses on creating a relationship of trust with the customer through proactive communication,

quick reimbursement, and return payments in case of a mishap or even unsatisfactory quality of the delivered problem, something that other players in the market do not offer.”

This was confirmed by an industry source, who revealed that apps like Foodpanda and Daraz do not reimburse money but offer points on the app, which is essentially a way of trapping the customer. “People get reimbursed in the form of Panda Points or it goes to their Daraz Wallet. Daraz sends back your money in the wallet, even when you don’t have one, so they can force you to activate it. So, people cannot use that money anywhere else but only on the app in question.”

Chishti also mentioned that Futafut’s digital payment strategy helps them keep their sales commissions low, thereby extending better prices to both their customers and retailers. In comparison, Foodpanda charges a 26% sales commission on average and it can go up to 45-50% at times, which according to Chishti makes the whole endeavour counterproductive.

Do competitors perceive Futafut as a real threat?

Well, not really, no.

Profit asked Hammad Bawany, Co-Founder and CPO of Krave Mart, whether the growing competition in the digital market space concerns them. ‘No, we are essentially only directly competing for market share with two other companies: Foodpanda and Cheetay. However, we are doing quite well and have experienced steady growth. Yes, the market is getting more saturated, however it is also a good market with a lot of potential and despite the inflation, the performance is not that bad.”

When asked about the digital payment method of Futafut and their insight into the strictly digital payment strategy of the new company, Bawany said, ‘We also offer digital payments but cannot have a strictly digital model. We cater to all kinds of customers, so those without a banking app or a credit or debit card can also avail of our services. So, yes, this Futafut app might be doing something

good, but it doesn’t align with our business model and complete target audience.``

Bawany also mentioned how cash handling comes with several challenges, but digital payment has issues of its own. “Yes, it saves you from cash handling and monitoring the long value chain to track money, but credit card payments mean hurting our margins by over 3%, apart from the on-boarding charges, so digital payment doesn’t come without its own set of drawbacks.”

Communication is an important pillar of any business strategy, and Futafut combats any problems in that regard through a proactive and hands-on approach. They have a customer support team available round the clock to assist with any queries or concerns.

“We take a personalised approach to customer service, treating each customer with care and respect. Our commitment to providing an amazing customer experience includes a streamlined refund process made possible by our digital payment system. Since we only support digital payment methods on our app, refunds can be processed swiftly, providing a quick and hassle-free experience for our customers,” disclosed Chishti to Profit.

According to Futafut, building trust is essential to the success of their business, and they claim to understand this quite well. “We take several steps to ensure that our customers feel secure and confident when using our app. One of the ways we tackle the issue of trust is through our innovative product portfolio, which allows us to use transparent and robust digital payments for both consumers and retailers. By using digital payments, we provide a secure and seamless payment process that eliminates the need for physical cash handling and reduces the risk of fraud or theft.”

As Pakistan joins the world in its transition to a completely digital transaction system, Futafut takes on the mantle of digitising finance and payments for Pakistani businesses. n

Efficient communication goes a long way

“Futafut fosters a culture of digitised transactions by supporting digital payments on its platform, freeing the customer from the hassle of carrying and managing cash. With our verified riders, we provide a level of trust to our customers that is unparalleled”

Imad Uddin Chishti, CEO & Co-Founder Futafut

Asif Saad

Flipping the script

Devolving political and economic powers to local level can treat what ails Pakistan’s fledgling economy

As we watch the frenzied power grab in Pakistan, one wonders what exactly are the two sides fighting for. The prize for the winner is a state which has been sliding into disarray for many decades. The weakening of institutions which have been the traditional power centers in Pakistan is not a short-term drift but a longer-term trend that needs to be understood in its proper context.

The political trends are forcing the economy to move rather sluggishly but definitely in parallel with them, towards a de-regularized and more empowered provincial and local arrangement. Though it could be argued that the new-found independent streak of at least 3 of the 4 provinces is actually the cause of these trends. It does not matter.

What matters is that the real fight is between the beneficiaries of the unnatural economic structures which have prevailed for 75 years and those aligned with the more organic evolution of the economy.

Unfortunately, most of our politicians and economic planners along with the business community do not seem to grasp the implications of this change and continue to pander to the status quo.

Those who cling desperately to the past have nothing to offer except wish lists, which amongst others, include; improving governance and rule of law, exporting more than importing and

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

producing and consuming local goods, and institutionalizing democracy from grass root levels.

Achievements in these areas are not wrong to wish for and no one can disagree with them. However, they are used merely as political slogans without any deep analysis or firm footing, or even a basic understanding of how such wishes can come true.

For example, the emphasis on increasing exports without global competitiveness in the manufacturing sector can only imply more rent-seeking for export growth – a formula well-known and practiced for the last 75 years.

It is difficult to see any meaningful change as long as the economic planning, or lack thereof, is driven by the central powers in Islamabad or even through the four provincial capitals. This is what politicians, economic managers, and businesses must come to grips with.

Neighborhood models

There are examples of how development has happened in our own neighborhood. Both China and India have made large strides toward economic development and have followed the bottom-up model of growth from the grassroots level.

In China, the CCP (China Communist Party) government has played a big role in directly supporting state and commune-level growth. In the case of India, the provinces have exercised much more independence in designing the processes for local improvements according to their own needs.

Surely, China has had much more success and has been a case for the world to study while it is widely recognized that India is not in the same league – yet.

The case of China

We have much to learn from China. While we claim the country to be our truest friend, I am not sure how many of us understand that the transformation of the Chinese economy was based on the development of different geographical regions and the local communes within those regions.

Johns Hopkins professor Yuen Ang’s book “How China Escaped the Poverty Trap” is a fascinating read and helps to truly uncover the underpinnings of China’s transformation.

According to Ms. Ang, beginning in 1978, Dao Xiaoping’s reforms were based on the realization that solutions to China’s unique complexities cannot be found by following any particular formula proposed by international donors, modeling itself on other countries, and certainly not by following its own historical evolution. The solutions found were completely indigenous and rooted in simplicity.

To start with, China did not create new institutions or bureaucratic structures. Instead, it used the existing weak ones and incentivized the same to improve performance in various

aspects. Attracting investment which was desperately needed to build industry and employment within local communes, became the top priority for the commune bureaucracy.

The reforms were incrementally designed to bring gradual change instead of seeking radical new solutions. Bureaucratic incentives were aligned with efficiency at the local level and additional investment was provided to the communes from the efficiency gains.

Performance was rewarded with promotions, and many of the current CCP leadership, including Xi Jinping himself, belong to the ranks of the bureaucracy which performed first at the local commune level.

This led to a positive loop; first harnessing weak institutions to build markets, these developing markets stimulated stronger institutions, which worked to preserve and strengthen markets further.

Undoubtedly, the growth achieved from this formula suffered from many inadequacies; it was uneven in several aspects; First, geographically, some areas such as the coastal belts of Shanghai and Shenzhen, sped far ahead of the others and the laggard central and western parts had to play catch-up.

Second, and perhaps more importantly, it provided for wealth creation at the cost of escalating inequality as it relied on a pure capitalist model with privatization at the heart of economic reforms.

Third, corruption was rampant but accepted as a necessary price for growth – this is a critical issue that Pakistanis need to digest, and I will come back to it shortly.

Lessons for Pakistan

For the land of the pure, its politicians, and economic managers, there are important lessons to be learned from the above. Could a possible way out of our current malaise be found by restructuring society - by devolving political and economic power to the local level?

In trying to answer this, we must assess our own particular complexities and find indigenous solutions wherever possible. Unlike China before Deng Xiaoping’s reforms, thanks to the British Raj, we inherited a well-organized military and a bureaucratic and judicial set-up that was already used to implementing administrative agendas. We proceeded eventually to build a parliamentary process and were able to have a constitution after several stop-starts.

However, the dismal performance of all state institutions since the country’s inception raises doubt over their utility. Did we actually end up trying to develop first-world institutions in a third-world economy? Is this mismatch one of the significant underlying reasons for economic underperformance? Is corruption

a necessary cost to be paid to achieve our growth objectives?

There are no easy answers to these questions. We cannot possibly undo the institutions in whatever shape and form they exist today. But we can try to imagine a different role, a new perspective on their worth to society.

The issue of corruption needs to be addressed not by condoning it but perhaps by creating an incentive structure that provides financial motivation. Clearly jail terms and plea bargains do not seem to be an apt response to this growing menace.

Pakistan’s move towards local empowerment

On the positive side and in line with this analysis, the 18th constitutional amendment was a step in the right direction as it reinforced natural evolution. However, its implementation has left much to be desired even by the political parties who initiated this important legislation.

That said, much that has transpired in the political economy since the passing of this amendment can be seen as the tussle between the forces which would like to see it undone and revert to the old ways of centralized control and those who believe that this legislation is a critical achievement and the country needs to stay on this path - both in terms of legislation and having the will to implement the changes at the grassroots level.

When our politicians speak of transforming Pakistan, they mostly refer to how and why things are done in Islamabad, or at most, the four provincial capitals. This is far from the realities of local communities.

I wonder how someone in South Punjab or rural Balochistan or FATA can ever relate to the political shenanigans on display on the idiot box. It must all seem so irrelevant.

Unless communities are able to see themselves and their families and friends benefiting from public goods and services, we will not see real transformation.

To illustrate what could such transformation look like, here are some of the areas which could benefit from local empowerment;

Provinces to document the economy

Estimates of the size of Pakistan’s undocumented economy vary from 30% to even double the size of the official GDP. Irrespective of this, the parallel economy needs to be documented and brought into the formal sector. Provincial and local

governments are in a much better position to achieve this with local know-how and proximity to markets.

Localize Tax Collection

We are already seeing provincial tax collection agencies performing much better than FBR. Our dismal tax-to-GDP ratio can only improve if citizens are able to see the impact of their tax payments. Allowing the local governments to collect taxes to cater to the infrastructure and social sector needs of their communities can improve revenue generation which can then be used for further investments.

Shift Public utilities to provinces and eventually local governments

The control of electricity, water, and gas utilities should be moved to provincial governments initially but ultimately it should rest with local governments. The centrally controlled utilities should be broken up and control of much smaller entities catering to local needs should be transferred. Privatization of public utilities with monopoly rights serves no purpose other than parking public sector subsidies under a different head.

Allow local leadership to rise through the ranks

As a student of management & leadership, I believe this to be a significant advantage of empowerment at the grassroots. Imagine, as a replacement for the current lot, political leaders who have proven themselves on the reform agenda at the local level.

These are only a few examples but I am sure we will find plenty more by thinking along these lines.

In my consulting work, I often advise companies to think outside the box and look for solutions where they currently see no possibilities. It is a process of making people see for themselves that solutions do exist but you have to find them by flipping the script so to speak. This is what Pakistan needs to do to rescue itself from its precarious condition.

I am not sure if China or any other model provides the correct example to be followed by Pakistan, but it is definitely the kind of thinking required to move forward. n

Citing 80,000 casualties in war on terror and back-to-back losses in wars with India, Miftah proposes privatisation of military

By The Dependent

Former finance minister Miftah Ismail has said the time was right to reimagine Pakistan and to privatise the Pakistan army.

“It’s not as if we don’t spend money on the military,” he said, while speaking at an event. “No, we spent Rs 1.53 trillion last year alone on the defence budget. But all this defence spending amounts to nothing much.”

“The ‘48 war was barely fought by the army and it was the tribes doing most of it. We lost ‘65 despite what we teach kids in textbooks, we clearly lost ‘71 and that we can’t work our way around, even in textbooks. Then we lost Kargil,” he said.

“But the strategy of strategic depth or whatever it is, has

caused us more losses than those wars: we’ve lost more than 80,000 lives in the war on terror, not to mention that it was all for nothing, since we have a hostile government in Afghanistan now. Previous Afghan governments wouldn’t have been hostile had we cooperated with them, but how can we cooperate with the current government more?”

“And add to that the military’s insistence on running subsidised business organisations which they can’t make profitable even despite all that subsidy?”

“I say, let’s keep the airforce because they at least seem to know what they’re doing,” he said.

“Let’s hire mercenaries for protecting the country,” he said. “In fact, we could even start looking at the tribes. Let’s not throw good money after bad and cut our losses.”