Profit E-Magazine Issue 248

CON TENTS

08

08 Track-and-Trace troubles

16

16 Why don’t we have phone plans in Pakistan?

22

22 The currency shadow market Ammar H Khan

24 Symptoms of distress Abdullah Niazi

25

25 Pakistan's Path to Prosperity: The Urgent Need for a Regulatory Framework in the Crypto Market Mustansar Iqbal

27 PosterMyWall’s journey of coincidence

Publishing Editor: Babar Nizami - Joint Editor: Yousaf Nizami

Senior Editor: Abdullah Niazi

Executive Producer Video Content: Umar Aziz - Video Editors: Talha Farooqi I Fawad Shakeel

Reporters: Taimoor Hassan l Shahab Omer l Ghulam Abbass l Ahmad Ahmadani

Shehzad Paracha l Aziz Buneri | Daniyal Ahmad |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

Track-and-Trace troubles

Track and trace is one way to counter our tax collection problem. But it only scratches the surface

By Abdullah Niazi and Shahzad Paracha

It was a strange sight watching a ranking officer of the Federal Board for Revenue (FBR) receive applause as he took the dais at an event organised by the Society for the Protection of the Rights of the Child (SPARC). What does an Additional Director of the FBR’s Track and Trace Project have to do with advocating for children’s rights?

The answer might surprise you: Big Tobacco. The 1st of June is marked as the international day for ‘No Tobacco’. The event organised by SPARC was meant to raise awareness regarding the dangers passive smoking poses to the health of children. Mr Sarfaraz was present at the event because of a recent achievement by the FBR — they have managed to increase the amount of tax they collect from tobacco producers.

The revenue board claims that behind this success is a ‘Track-and-Trace’ or ‘T&T’

system that they have been in the process of implementing since late 2021. And it isn’t just tobacco. As part of Pakistan’s commitments to the IMF, T&T systems have been introduced in the cement, fertiliser, and sugar industries as well in addition to tobacco. In fact, sources within the FBR have told Profit that by their estimation they can collect around Rs 200 billion tax by implementing T&T in five sectors including petroleum, tea, pharmaceutical, tyres and spices.

And the success in the tobacco industry would indicate that the track-and-trace methodology works. Tax revenue collection from the tobacco industry has increased 13% from the first ten months of the current fiscal year following the implementation of the Track and Trace System. That amounts to an impressive Rs 17 billion in additional revenue.

You see, Pakistan has a taxation problem and it is worse than you think. A recent report of the World Bank placed Pakistan at an abysmal number 173 in an international ranking of paying taxes. Pakistan’s tax to GDP

ratio, which is the ratio of the tax revenue of a country compared to its GDP and tells how well the government controls a country’s economic resources, has been in single digits for years. In comparison, the highest tax-toGDP ratio in the world stands at nearly 50%. Even by regional standards, Pakistan is nearly 10% behind the 19% average in the Asia-Pacific region.

Pakistan lags behind both in tax collection and in increasing our tax net. At the same time the government’s expenditures increase every year. So what happens in the budget whenever Islamabad needs more money? You squeeze the already small base of taxpayers even more. That is the easy solution. Bringing people into the fold of taxation is never easy. That is why the government chooses workarounds like high GST rates and income tax that can be deducted from anyone and everyone across the board. Implementing a progressive taxation system would require documenting and running after large businesses and taxing their incomes and profits. This would

both provide relief to the existing taxpayers and the general public and also increase the government’s revenue.

But is T&T the way to go about this? In the past year, as part of its attempts to meet the conditions of the International Monetary Fund (IMF), the government has tried to implement a track-and-trace (T&T) system in at least four different industries: cement, sugar, fertiliser, and tobacco.

These are all industries and products that are susceptible to the black market. With a T&T system, the government would be able to keep a closer eye on how much these industries are producing and tax them accordingly. Other than in the tobacco industry it has proven to be glitchy and has had the different industries it has been introduced in up in arms.

On top of this, Pakistan’s taxation issues go far beyond just a monitoring problem. The federal government is the only real collector of taxes and most of those funds are distributed through the NFC awards to the provinces. Tax collection on a provincial level is low and completely non-existent on a local government level — where it should be the highest and most robust. So how has the T&T system done in Pakistan? How have the industries mentioned reacted to the increased watchfulness of the FBR? And how far could this measure really go?

The track-and-trace system

Manufacturers often under-report their production numbers precisely to evade tax. This is where the problem starts. Say, for example, that you are a fertiliser manufacturer and produce 500 bags of Urea. The demand for fertiliser from your plant is 400 bags. Now, if there are 500 bags being produced that would mean the supply is increasing beyond demand which results in the price falling. The problem for the manufacturer is that the government will tax every single bag of Urea that is purchased. So instead of reporting these extra 100 bags, the producer will show that they are making an even 400 bags and sell the remaining 100 at a lower price free of tax.

{Editor’s note: Urea has just been used as an example here and the production numbers are also simply hypothetical and meant to help the reader understand better.} This then creates an artificial shortage. In most industries under reporting is much more blatant than in our example. Urea, cigarettes, cement, and sugar are susceptible to artificial shortages and are also part of smuggling rackets. Just last month the FBR’s customs department (yes the FBR has one of those precisely for this reason) seized urea fertiliser and sugar worth Rs 392 million from Baloch-

istan’s Khuzdar during three raids as part of a major anti-smuggling operation. Customs Intelligence seized 41,883 bags of urea having a market value of Rs 167.53 million, and 44,957 bags of sugar having a market value of Rs 224.79 million.

It’s a pretty simple system. Manufacturers underreport their production numbers. They then sell the unreported surplus production outside of the tax net at cheaper rates and the black market grows. This has resulted in startling estimates of just how big the shadow economy is in Pakistan with academics and researchers estimating the size of this undocumented economy anywhere between 40-80% of the country’s GDP.

So what can be done about this?

The T&T system proposes that tax collection be done directly at the source. That means the government monitors production and catalogue how much a company’s output is and then tax them directly on those numbers. So if we go back to our fertiliser example, when the government first brought in a T&T system it asked the fertiliser industry to invest heavily in a mechanism that would have a stamp placed on each and every bag of fertiliser produced which could then be scanned before it was sold. The data from this scanning would go directly to the FBR which would then record the total number of bags produced and tax them accordingly.

T&T solutions are used across the globe to assist in the process of tax collection. But how have these four industries in particular reacted to the attempts, and has the track and trace system had any results that speak to its efficacy?

Unpopular and ineffective?

Technology enhanced tax collection solutions offer the most feasible, reliable and trustworthy approaches to taxation. With minimum human intervention a T&T solution, if implemented in a proper and transparent manner, can safeguard the interests of tax revenue collection by providing traceability and process visibility through automated data capturing at all relevant role players in the respective supply chains and enabling tax collection governance based on real-time information. It can also act as a deterrent to tax fraud entailing visibility of production volumes and product attributes and dis-incentivising fraudulent activities such as under-declaration; and ensuring a level playing field.

In principle the concept makes sense, but the reality is a little more complicated and the response from the industries has been lukewarm. The T&T system had originally been the

idea of the IMF. They had suggested a Track and Trace system in October 2021 for the tobacco, cement, sugar and fertiliser industries with a view to enhancing tax revenue, reducing counterfeiting and preventing the smuggling of illicit goods through the implementation of a robust, nationwide, electronic monitoring system of production volumes.

Essentially, the system would fix more than 5 billion stamps on various products at the production stage which was meant to enable the FBR to track goods throughout the supply chain. Essentially, industries would stamp their products right after packaging them and then scan each one before selling it so that the data for production volumes goes directly to the FBR.

Going forward with the fertiliser example, in November last year the fertiliser sector banded together to complain about problems with the stamp system. In a letter to Federal Finance Minister Ishaq Dar and Chairman FBR Asim Ahmad, fertiliser manufacturers of Pakistan Advisory Council (FMPAC) claimed that the technology being used by the FBR (which the board had strongly armed the industry into investing in) did not work. They claimed, for example, that less than half of the stamps actually scanned even though the scanning efficiency was supposed to be 99%.

Now there could be two explanations for this. The first would be that the FBR did indeed bring in a flawed system which does not work. Later reports found that the board had not conducted a feasibility study to see if the stamps would work in Pakistan. The other explanation of course is that the industry was also unhappy with their production being tracked so closely and very quickly decided to shift the blame onto the system that the FBR brought in.

Implementing a T&T system requires a lot. FBR in its directions clearly stated that the tax stamp needs to be applied on the surface of the product in a location that is most accessible based upon the presentation of the bags to the applicator. On the other hand, manufacturers need to provide high speed internet connectivity so that once a stamp is scanned the data goes directly to the board. This then also requires a suitable location for the installation of equipment, an isolated power terminal point of 220v 15 Amp and floor space for the Unique Identifying Mark applicator that is used to put the stamps on.

The tobacco counterpoint

Largely, different industries have complained about the efficiency of the T&T system and feel that they have been made to invest in something that

does not work. To counter this, the FBR points towards the example of the tobacco industry where the track-and-trace system seems to have resulted in an increase in taxation revenue. As we mentioned in the beginning, there is some proof that indicates T&T has been successful at least as far as tobacco is concerned.

The board managed to collect Rs 149.40 billion in sales tax as well as Federal Excise Duty (FED) from the tobacco sector from July 2022 to May 2023. In comparison, the tax department had only collected Rs 132 billion in tax revenue from July 2021 to May 2022. In the last five years, the revenue collection from the tobacco industry has increased from Rs 116 billion to Rs 149 billion.

And this is despite the fact that the tobacco industry has been producing fewer cigarettes.

There has been a 17% decline in cigarettes produced and sold during July to April this year. The tobacco sector produced 46.83 billion sticks in 2022 which has now decreased to 36.40 billion sticks. Similarly, the sale was 42.70 billion which also declined to 35.48 billion sticks.

But wait a second, if production fell then why did the tax revenue increase? And on top of that, wasn’t the entire purpose of the T&T system to beat under reporting? The answer to this question lies in a unique feature of the tobacco industry which has also made track and trace so widely used and successful when it comes to tobacco.

There are two MNCs that operate in Pakistan. One is the Pakistan Tobacco Company Limited (PAKL), which is the Pakistani subsidiary of British American Tobacco. The other company is Philip Morris Pakistan Ltd (PMPK). Together, these two companies control more than 90% of the documented tobacco industry in Pakistan. Their biggest competition, however, comes from local companies

that under report their numbers and account for around 10% of the tobacco market.

According to estimations made by the MNCs, while they have 90% of the documented market share, they only have around 65% of the overall market share. That is because local cigarette manufacturers under-report their numbers, avoid being taxed, and sell cheaper cigarettes. PTC and PM together are the two largest tobacco producers in the country and have 65% of the market share. Other than them, there are 52 companies that produce and sell around 35% of the cigarettes in the country. However, these 52 companies only pay 2% of the total tax revenue collected from the tobacco industry annually.

The smaller companies sell cigarettes in the shadow economy free of tax and are able to undercut PTC and PM. This naturally irks the MNCs which then regularly lobby and push for the smaller manufacturers to be taxed more. The MNCs actually lobby for higher taxes that are more stringently imposed on the local growers and manufacturers. They believe that because they pay so much more tax while local producers do not, they have an unfair advantage that allows them to control 35% of the market share.

Let us not be under any illusions here. Large tobacco companies are not making these demands out of any sense of duty or goodwill. No, they want more people to smoke more cigarettes and given the chance, they would splurge on advertising, marketing, and packaging the product. And after completely dominating they would then lobby for lower taxes.

But the results have been there for all to see. The FBR’s Track and Trace system has kept illicit trade from going above 15%. There have also been other uses of the Track and Trace system. Three local tobacco companies, namely Paramount Tobacco Company, Millat

Tobacco, and Tobacco World, have signed the Tripartite Agreement (TPA), thus integrating themselves into the Track and Trace System. The big tobacco facilities that account for 97-98 percent of the tax revenue generated by the sector will experience advantages from the inclusion of local tobacco companies in the system. Additionally, improved enforcement measures can effectively suppress the illegal trade of non-duty paid tobacco products, thereby assisting legal product manufacturers in meeting their revenue targets.

The real taxation problem

Of course, this is all a question of methodology. The real problem is that Pakistanis are taxed unfairly and those that should be paying the lion’s share end up paying nothing. Just take a look at Pakistan’s tax structure. Tax structure refers to the share of each tax in total tax revenues. The highest share of tax revenues in Pakistan in 2020 was derived from value added taxes / goods and services tax (39.8%). The second-highest share of tax revenues in 2020 was derived from other taxes (33.3%).

In comparison to Pakistan, countries in the Asia-Pacific region only collect about 23% of their taxation from goods and services taxes — meaning Pakistan’s average is almost double. Why is this the case? The biggest reason of course is that taxation in the country is centralised. The FBR collects almost all taxes (even the ones that should be collected by provinces under the 18th amendment) and then those collections are then given to the provinces in the form of the NFC award leaving the federal government with very little spending money. “The problem is how the NFC award is structured, the percentage that goes to the provinces needs to be reduced. Around 60% of what the centre collects goes

We as a country have failed to implement the beautiful 18th amendment. The implementation has been slow and weak. Despite having access to the two biggest cash cows, services and agriculture, the share of provincial tax revenue is close to 1% of the GDP. You would be surprised to know that the corresponding number for Indian provinces is around 6% of the GDP, with similar fiscal powers

Dr Hafeez Pasha, former finance minister

to the provinces,” says former finance minister Miftah Ismail.

Former Finance Minister Dr. Hafiz Pasha, while talking to Profit, lamented that, “We as a country have failed to implement the beautiful 18th amendment. The implementation has been slow and weak.”

Since the share of the provincial governments, under the NFC awards, over the last few years has been increased from 40% to around 57%, it has provided the provinces with very little incentive to develop their own revenue sources. Despite having access to the two biggest cash cows, services and agriculture, the share of provincial tax revenue is close to 1% of the GDP. “You would be surprised to know that the corresponding number for Indian provinces is around 6% of the GDP, with similar fiscal powers,” says Dr. Pasha.

The solution of course is right in front of us: devolution. More than just being a third tier of democracy, having a local bodies system means having a new economic process. In essence, it is not just a new administrative stratification, but also involves the dispensation and spending of money. Things such as

education and health that people automatically look towards the provincial government for would now be handled by local representatives. Perhaps most crucially, the ability of local governments to collect taxes and release their own schedule of taxation allows them to make their own money and spend it on themselves rather than waiting for the benevolence of the provincial or federal government.

Of course, devolution to local governments is still a long way away. In the meantime, the Track and Trace system needs to be better implemented with proper feasibility studies before tech is brought into the country. Otherwise this will be another in a long list of failures where the state will be unable to improve our tax collection mechanisms and widen the cast its net. n

The problem is how the NFC award is structured, the percentage that goes to the provinces needs to be reduced. Around 60% of what the centre collects goes to the provinces

Miftah Ismail, former finance minister

By Daniyal Ahmad

Envision this: you’re yearning for a sleek new phone, but unlike the rest of the world, you can’t just snag it on a monthly plan. No, you and I are forced to confront the grim reality of coughing up the full price upfront or settling for a dinosaur. It’s hard to shake off the nagging feeling that something’s amiss. Why are we being denied the same privileges as others?

The bitter truth is that our industry is caught in a paradoxical situation that echoes the notorious Prisoner’s Dilemma in game theory. This ageless enigma illustrates how rational choices can lead to catastrophic outcomes. It involves two prisoners, isolated and unable to communicate. They’re faced with a choice — cooperate or betray. Cooperation reaps the greatest reward, but betrayal is often chosen. Here’s the twist — acting in their own self-interests doesn’t produce the best outcome.

It’s the ultimate example of how communication, rather than isolation, can lead to mutual benefits. This dilemma has confounded economists and philosophers for years. It’s arduous to find a direct manifestation of this, but Profit might have just found one. And it may just explain why we can’t get a phone on a contract like our friends overseas.

Setting the stage — have phones become more expensive?

Have mobile phones become more costly? “With over 100 phone models that change every four to five months, obtaining such information is challenging,” states Aamir Allawala, CEO of Tecno Pack Telecom. “Nonetheless, I can confirm that prices have risen due to the Rupee’s depreciation. The local value addition is 15%, with the rest of the phone dependent on imported

components,” adds Allawala. Profit, thus, examined Pakistan Customs’ data for insights.

In 2020, Pakistan imported $1.52 billion worth of completely built-up (CBU) smartphones, increasing to $1.79 billion in 2021. CBU data for 2022 was unavailable, but Pakistan imported $1.14 billion worth of semi-knocked down (SKD) kits in 2022. CBU refers to the final handset while SKD refers to individual mobile components assembled to create a phone.

In terms of volume, Pakistan imported 15,483,699 smartphone CBUs in 2020 and 14,989,137 units in 2021. The volume for SKD units was 9,072,749. Subsequently, dividing the value by the volume determines a phone’s average price.

In 2020, Pakistan imported $150,515,530 worth of CBU feature phones, rising to $177,730,353 in 2021. The value of SKD units was $110,428,587 in 2022. The volume of imports was 17,468,896 units, 18,432,957 units and 12,081,710 units respectively.

The average smartphone price subsequently rose from $98.79 in 2020 to $126.63

in 2022. Similarly, the average feature phone’s price increased from $8.59 to $9.14. However, this is a rudimentary metric. This is unrepresentative of customer experiences that Profit encountered when engaging in conversation for this piece. The average value of feature phones declined in 2022 from 2021, whilst the increase in the value of smartphones does not seem as pronounced as our conversations alluded to. There are simple explanations for this.

with the trend observed from 2020 to 2021. Thus, phones have become costlier due to factors beyond the Rupee’s depreciation — the use of SKD kits. What’s up with the kits then?

Why they might stay expensive for a while to come

The rising cost of living in 2022 may have led to importing more affordable phones altogether. Another reason for the dip between 2021 and 2022 is the existence of SKD units instead of CBUs. SKD units require assembly and are devoid of final taxes and profit margins. It is reasonable to assume the actual price trend aligns

The Government launched the MDMP in 2020 to stimulate domestic phone production. It levied duties on imported phones to foster local manufacturing. The policy resembles our automotive policies, where manufacturers achieving economies of scale enhance cost and features for the user. This accounts for the prevalence of SKDs over CBUs, and the rising and persistent cost of CBUs. Profit has previously explored this in depth for those interested.

Read more: Pakistan’s cellphone industry: A prospective $15 billion exporter or another automotive-style catastrophe

So, where do we stand? Our phones have

become costlier. Companies producing them must attain economies of scale for customers to benefit from quality and price improvements, but those remain elusive. How do we persuade people to exceed their purchasing power? Instalment plans seem obvious. However, we’ve reached the core of our story. Why do we lack these contracts? This is where we enter the labyrinthine mess known as the Prisoner’s Dilemma. Let’s begin with phone manufacturers.

What’s the phone manufacturers’ point of view?

“iPhones dot the European and American markets, but not every customer paid Rs 500,000 like us. Globally, telecom operators are the buyers for phones. They buy them in bulk and sell them to customers in easy instalments,” elucidates Allawala. Why don’t ours then?

“Phone loans are unsecured loans. Financing for phones exists for credit card

customers, using their cards as collateral,” explains Muhammad Naqi, CEO of Premier Code. In fact, most don’t. According to Karandaaz, only 1.9 million credit cards existed across Pakistan in December 2022.

“Across the developed world the risk is borne by a bank or telecom operator, and not

the brand,” expounds Naqi. “Unless the operator gets involved, obstacles will persist. There’s always a chicken and egg problem for a brand. If a brand has decent cash sales volume, why give a year’s worth of credit?” Naqi adds further. “Let’s assume a telecom operator wants 100,000 devices on credit for a year. If I take the

Muhammad Naqi, CEO of Premier Code

Phone loans are unsecured loans. Financing for phones exists for credit card customers, using their cards as collateral

exposure of Rs 300 million for a year and the delinquency rate is 30%, that’s Rs 90 million lost. Manufacturers don’t operate on high enough margins to bear such costs,” laments Naqi. However, isn’t this just a case of underwriting then? Surely, the banks could do it. No?

Do banks care?

“Our banking system eschews documentation, recovery efforts, and insurance acquisition,” laments Allawala. How cogent is his claim?

“Banks finance handsets directly through credit card guarantees or personal loans,” states Shahzad Ishaq, Group Head of Digital Banking & Chief Digital Officer at MCB. “But that’s disparate from signing up for a service contract as it operates abroad. The bankable population is 18% of the eligible adult population. This constrains what we can do, but we can do something for that 18%,” Shahzad adds.

“If the bank were a partner, the contracts would be underwritten. Underwriting involves checking the repayment ability, debt burden, bureau checks, past records, and more. With a good underwriting process, you can reasonably foresee that the customer will pay,” explains Shahzad.

“Looking at operational costs for a loan worth Rs 40,000-60,000, it’s feasible because there are decent margins around what we call a personal finance arrangement or a loan originated in a pre-underwritten product. The average credit line on credit cards is close to Rs 80,00090,000. That suffices to cover people for a Rs 50,000 handset which can be purchased, and put on an instalment plan. Similarly, personal finance can be initiated,” Shahzad elaborates.

As with all ventures, banks must assess the opportunity cost. “This uncharted territory can be juxtaposed with the existing abundant opportunities. With the current market discount rate at 21%, such an exorbitant loan becomes perilous,” warns Shahzad.

“Given the climate, both telecom companies and banks deem this an unscalable venture due to the lack of social impetus. It is

purely a commercial endeavour. While it may warrant experimentation, its scalability is dubious,” Shahzad reflects. Despite his optimism, Shahzad’s hopes are put to question by MCB and its counterparts’ inaction. What’s up?

A head of consumer banking at another bank consented to expound on the matter anonymously. “Financing is a means to an end,” they stated. “Abroad, telecom operators lead the consumer-facing aspect of cellular financing. They undertake all marketing, and visibility efforts. While there is a financing angle, the onus of devising and maintaining a financing solution rests on the telecom operator,” our source elaborated.

So where are we? In limbo. Manufacturers bemoan the lack of support while banks shun undue risk in a sector where they perceive the market maker to be another entity. However, both parties singled out telecom companies in their criticism. Are they culpable?

The telecom operator question

“Our country operates on a prepaid market model. Most consumers eschew long-term relationships with operators,”

laments Khurrum Ashfaque, Chief Operating Officer at Telenor.”In contrast, the global postpaid or contract market necessitates customers to sign up for 1-2 years. This establishes a long-term commitment with their telecommunications provider. This arrangement affords the provider the opportunity to offer bundled handsets as part of the contract, with payments spread out in instalments.” Ashfaque explains.

“Our core business provides data and connectivity services and does not entail lending or loans for handset purchases,” Ashfaque clarifies. “The average revenue per user (ARPU) for a telecommunications subscriber within the local industry is less than $1. This demographic diverges significantly from the typical clientele of banks. The checks and balances required to assess creditworthiness incur exorbitant costs, rendering it an unappealing model with high credit risk. Banks shun such territory,” Ashfaque elaborates.

“Even if we could surmount financial hurdles, technical complications pose further challenges. For instance, in other markets, telecommunications providers do not permit customers to switch to competitors while bound by a contract.,” Ashfaque continues.

“Enforcing such technical control here is

Our country operates on a prepaid market model. Most consumers eschew long-term relationships with operators. In contrast, the global postpaid or contract market necessitates customers to sign up for 1-2 years. This establishes a long-term commitment with their telecommunications provider

Khurrum Ashfaque, Chief Operating Officer at Telenor

iPhones dot the European and American markets, but not every customer paid Rs 500,000 like us. Globally, telecom operators are the buyers for phones. They buy them in bulk and sell them to customers in easy instalments

Aamir

Allawala, CEO of Tecno Pack Telecom

unfeasible due to the prevalence of ‘jailbreak’ technologies. Handsets procured through loans can be effortlessly unlocked in the open market,” Ashfaque adds.

Allawala builds on Ashfaque’s points. “Even if we could brick the phone, what’s to stop individuals from storing it in a drawer or using it as a paperweight? They could even disassemble it and sell the parts,” he elucidates.

Putting the pieces of the puzzle together

With all parties having had their say, it’s time to pit them against one another. They’ve evidently yet to convene for this conversation.

First and foremost, let’s address the ingenious methods customers may employ to breach their contracts and abscond. “By thoroughly vetting a customer’s creditworthiness through underwriting and credit screening, the odds of them going rogue are significantly reduced,” Shahzad asserts. Let’s double down on mitigating this risk.

“In the absence of traditional financing solutions, some companies have begun collateralising the phone itself to sidestep the issue,” Naqi exclaims. “Samsung has its own solution, as does my brand. Google plans to roll out a device locking component on all its phones in 2024, which the company will enforce,” Naqi adds. “Google’s locking feature across Android phones will open up new financing options,” Allawala chimes in. Let’s get everyone onboard now.

“Any entity seeking to enter the mobile phone financing arena may collaborate with telecommunications providers. Our contribution to this ecosystem comprises an extensive network of franchises and retailers throughout the country, as well as a comprehensive analytical database of consumer behaviour, usage, and demographics that can facilitate the identification of suitable users for smartphone purchases.,” Ashfaque elaborates.

Surely, by combining the solutions proposed by all three parties, the risk can be ef-

fectively mitigated. Easier said than done, you might say — but Profit would like to believe they possess the acumen to distinguish between a genuine customer and a rogue element if they put their heads together.

Now we turn our attention to part two: Scale. Whilst banks and manufacturers have already broached the subject of scale, what about telecom companies? “The true benefits will materialise with mass market adoption and attaining a scale of millions for such handsets. Participation in this journey will only be meaningful if it achieves mass-market scale. Entities seeking to collaborate with telecommunications providers should envision mass-market scale rather than niche value propositions.,” Ashfaq expounds.

We have already delved into the intricacies of financing and recovery. So what sort of scale are we tentatively envisaging? According to Karandaaz’s financial inclusion survey as of February 2023, a mere 19% of the total adult population possesses a bank account. However, there’s room for expansion.

We have already explored the intricacies of financing and recovery. So what sort of scale are we tentatively envisaging? According to Karandaaz’s financial inclusion survey as of February 2023, a mere 19% of the total adult population possesses a bank account. However, there’s room for expansion.

“An average of 35 million phones are sold in Pakistan annually. Assuming only half of them are smartphones and we can only tap into 30% of that half, that still leaves us with a staggering 5 million potential customers for whoever is willing to tackle this challenge head-on,” Allawala declares.

With all that done, is Profit forcing this relationship onto the requisite sectors? Or is there actual interest amongst our sources to actually see this through?

A case of the jitters?

“With prices soaring, it is only a matter of time before this becomes a reality. It hinges on

priorities and the ability of banks and other financial institutions to launch a program of this nature,” Naqi exclaims. “People will naturally transition from feature phones to smartphones. I firmly believe that, apart from the most orthodox individuals, everyone desires a smartphone. If someone is willing to finance this transition, it could be expedited; otherwise, it will unfold at its own pace,” Allawala adds.

“It is entirely feasible. Manufacturers, banks, and telecom companies must engage in a delicate dance for this to work,” Shahzad states. “I think we are too risk-averse in this market, so there is a tendency to stick with tried-and-true methods. It simply needs to be tested,” Shahzad muses.

“Each party must shoulder the risk associated with their area of expertise. As a telecom provider, our strengths lie in distribution, our network, the services we provide on top of that. The risk associated with loan schemes, and device inventory should be assumed by the parties best equipped to mitigate it,” Ashfaque elucidates.

“The time is ripe for this idea. However, each party must play their respective roles to ensure a sticky relationship triangle,” Shahzad exclaims.

“Banks will engage in underwriting by assessing debt burden, ability to repay, and existing bureau records. The telco will safeguard the relationship through a service or custodial service contract. The manufacturer can provide analytics on the mobile customer base or assist in upgrading programs by tapping into their existing customer bases,” Shahzad continues.

Now Profit does not provide matchmaking services, so all the aforementioned players will have to get together on their own initiative. However, they might not even require Profit’s assistance because this is far from a forced union. Clearly, all of them seem keen to play ball. There’s theoretically money on the table to be made. It’s just a matter of who is going to take the first step, and dimension it. n

Banks finance handsets directly through credit card guarantees or personal loans. But that’s disparate from signing up for a service contract as it operates abroad. The bankable population is 18% of the eligible adult population. This constrains what we can do, but we can do something for that 18%

Shahzad Ishaq, Group Head of Digital Banking & Chief Digital Officer at MCB

Ammar H. Khan OPINION

The currency shadow market

There are numerous PKR-USD exchange rates that exist. The rate at which various banks transact and conduct transactions is known as the interbank rate, and it is controlled by the central bank through a variety of means. The central bank is responsible for maintaining that rate’s stability; it can also shut down operations or employ other less subtle strategies to maintain market order when needed.

There is also a rate known as the open market rate, which is the rate at which exchange firms buy and sell foreign currency to regular people in exchange for a variety of documents, among other things. The difference between the open market rate and the interbank rate is usually only a few rupees in normal, non-volatile times, or around 1 to 2 percent. However, the gap widens significantly during volatile times, and in recent memory, it has reached more than twenty rupees, or roughly seven percent. However, the spread—the difference between the two rates—can be tightened by the central bank to maintain some order in this market by controlling the supply and demand of foreign currency. The availability of foreign currency at a particular open market rate is not guaranteed. There may be supply at that rate, but the rate may not exist.

For want of a better term, the “real” open market rate

is essentially the marginal rate, also known as the price at which actual transactions take place or supply may be available. In recent times, there has been a difference of as much as thirty rupees, or roughly ten percent, between this rate and the interbank rate. This “real” open market rate has fluctuated between seven and ten percent over the past few months. This is the rate at which a large number of remittances have begun to flow through the informal market and the supply of foreign currency is available.

A broken market is indicated by the existence of three distinct rates and significant spreads in relation to the interbank rate. Since there is insufficient supply of foreign currency on the formal market, wide spreads like these mean that availability can only be guaranteed at a higher rate. The new declaration by the national bank to move Mastercard settlements in unfamiliar cash from open market to interbank implies the very, to such an extent that interest in the open market can be decreased, and the spread can be diminished. Although there has been some narrowing of the spread, the fundamental issue of a lack of foreign currency remains.

The country’s import coverage is at or close to its lowest level in two decades as a result of the restricted supply of foreign currency. This is the signal that our issues with foreign currency are far from over until we are able to stabilize our import coverage and arrange sufficient foreign currency to meet critical requirements. We will continue to observe volatility, wide spreads, and multiple rates for the same currency until that occurs.

The parallel markets that exist for exchange rates can only be eliminated once the sovereign stops interfering in management of exchange rate, and there is sufficient foreign currency liquidity available, whether that is through increased surplus, increased remittances, or fresh loans, or a mix of both. Furthermore, clamping down on cross-border informal trade that generates demand for foreign currency is also critical for bringing some order into the foreign exchange market. Any short-term intervention that the government does can only be an interim fix. Fixing the structure of the market, and availability of sufficient foreign currency liquidity remains critical to ensure stability in the exchange rate. It may also be noted here that in terms of pure fundamentals, assessed through the Real Effective Exchange Rate (REER), PKR is undervalued related to the USD – the premium that exists largely reflects the liquidity premium. Ample availability of liquidity can eventually lead to a more balanced exchange rate, and minimize impact of parallel shadow markets.

The writer is an independent macroeconomist and energy analyst.

It’s very difficult to educate hungry children

Abdullah Niazi OPINION

Symptoms of distress

Pakistan is sick. And this is no mild ailment or passing cough. Our federation is suffering from a back-breaking, blood-curdling, fever that won’t seem to crack. The infection that has caused this fever has crept its way through the country and nestled deep inside the economy.

As time has passed the state has continued to ignore this ailment and continue on its path of destructive gluttony. With eve ry day the infection has spread. It has stretched its dark, insidi ous limbs like an enraged octopus, engulfing and squeezing the life out of everything in its path.

The results have been clear as day. The pain of inflation has spread through the population like an angry wound. The cold sweats caused by unemployment have resulted in the jitters of a nxiety. And the overwhelming exhaustion that comes with any fever has run its course through the country leaving its people spent , its businesses weary, and its economy in a state of absolute lethar gy.

And now there is a new kind of symptom that has come to the fore — thrashing. After all, this country is a sick creatur e. It is burning up, it is scared, it is angry, it is confused, it is af raid for its life and now it is lashing out. In the ensuing flailing the stat e has begun to hurt itself. The recklessness with which helpful membe rs of this country such as Jibran Nasir have been picked up and ha d their constitutional rights violated is symptomatic of a state that is

writer is senior editor at Profit. He can be reached at abdullah.niazi@ pakistantody.com.pk

reacting in anger and frustration.

This is of course not the first time that the state has lashed out in anger or used its powers unjustly. We have many examples of such behaviour. Same came in other moments of ailments and other came out of hubris and gluttony. What we must remember is that it is the actions of the past that have brought us to this point. This is perhaps an unique moment in Pakistan’s history because we are struggling from a trifecta of social, economic, and political crises at the same time.

In many ways the fever is the result of circumstances we could not control. Pakistan did not cause the Covid-19 pandemic which halted the global economy. Pakistan also had nothing to do with the Russia-Ukraine war which disrupted fuel supplies and caused a global recession.

Yet in so many more things it is our own folly. There was plenty Pakistan could have done to protect itself from such a situation. For decades we have allowed ourselves bad habits and harmful indulgences. We have made our economy dependent on foreign aid and have consumed more than we have produced. As a result our bureaucracy has become bloated, clogged, and inefficient Time and again we have chosen to address the symptoms rather than the cause.

Liquidity injections, foreign aid, and debt restructuring have been used as balms and cold compresses to cool our heating economy. And even though the fever may go down at times, all the doctors know that by morning it will be raging again. This time it is burning everything, and it will take every ounce of our resources to fight back and survive.

There are many things wrong with this country. Many things that its founders and its first generations got wrong. We are suffering from those. They picked up bad habits such as military dictators and never picked up on healthy habits like democracy. The result has been a slow, morbid, poisoning that people in the corridors of power have watched with cold apathy. Despite all those flaws that they plagued this country with, they ensured that Pakistan survived. Today, we are standing at a mom ent where the symptoms of our distress are reaching a breaking point. Pakistan will survive t his. The age of 75 is quite young for a nation. Yet as things stand, we will come out of it weakened and perhaps unable to get back up from the next blow.

If we are to have any hope, there must be less thrashing and mo re acceptance of the illness.

The state is sick and the infection has set in inside its economy. But could we lose everything else in the process too?

Mustansar Iqbal

Pakistan’s path to prosperity:

Attracting Foreign Investment:

the Crypto Market

In an era of rapid technological advancements, Pakistan stands at a crossroads. As the global crypto market continues its meteoric rise, surpassing a staggering $2 trillion in market capitalization, the time has come for Pakistan to seize the opportunity and implement a regulatory framework for the crypto market. Inspired by successful models such as the Mica EU regulations, Pakistan has the chance to join the ranks of progressive nations that have embraced this emerging industry. This article delves into the compelling reasons why Pakistan must take immediate action to regulate the crypto market, exploring its potential market share, trading volume, economic advantages, potential drawbacks, and the steps needed to foster a thriving crypto ecosystem.

Aligning with Global Standards:

Pakistan’s entry into the regulated crypto market would signify its commitment to international standards and enhance its position within the global financial landscape. The global crypto market is projected to reach a staggering $5 trillion by 2026, according to a report by Markets and Markets. By establishing a regulatory framework, Pakistan can foster an environment that encourages innovation while safeguarding investor interests and ensuring compliance with global financial regulations.

Unlocking Economic Potential:

The potential economic benefits of embracing the crypto market are vast. According to a report by PwC, the average daily trading volume of cryptocurrencies globally exceeds $300 billion, showcasing the immense potential for economic growth. By providing a regulated framework that supports crypto trading and investment, Pakistan can nurture a generation of entrepreneurial minds, attract local and international talent, and stimulate economic growth in unprecedented ways.

Implementing a robust regulatory framework for the crypto market has the potential to attract foreign investment, addressing Pakistan’s crucial need for USD inflows. In 2022 alone, venture capital investments in crypto and blockchain-related companies globally reached a staggering $30 billion, as reported by CB Insights. By creating an environment that fosters innovation and attracts international investors, Pakistan can position itself as a hub for crypto-related businesses and harness the associated economic benefits. This influx of foreign investment can also lead to job creation, technological advancements, and the transfer of knowledge, contributing to Pakistan’s economic growth and development.

Mitigating risks through a controlled approach:

A cautious and controlled phased approach is necessary to regulate the crypto market effectively. By initially limiting participation to local companies, the government can exercise close scrutiny over fund movements and ensure compliance with relevant regulations. This approach mitigates the risk of illicit activities and provides a framework for sustainable growth. According to a report by the Financial Action Task Force (FATF), regulating the crypto market can enhance the country’s ability to combat money laundering and terrorist financing, safeguarding the financial system’s integrity.

Navigating Potential Drawbacks:

Volatility and investor protection remain critical concerns within the crypto market. The highly volatile nature of cryptocurrencies exposes investors to risks, necessitating robust investor protection measures. Transparency requirements, disclosure norms, and comprehensive consumer awareness programs are essential safeguards that Pakistan must implement to protect participants from potential losses and fraudulent activities. By establishing clear guidelines and enforcing transparency, Pakistan can build trust in the crypto market, attracting more participants and fostering a healthy investment environment.

writer is is a seasoned IT professional and respected blockchain expert

Addressing Regulatory Challenges:

Developing a comprehensive regulatory framework for the crypto market presents unique challenges. Pakistan must navigate legal and technical complexities while ensuring effective oversight. Collaboration with industry experts, engaging in dialogue with stakeholders, and leveraging international best practices are crucial to address these challenges effectively. Countries such as Switzerland and Singapore have implemented successful regulatory frameworks, providing valuable lessons for Pakistan to adapt and implement tailored regulations suitable for its unique circumstances.

The urgent need for a regulatory framework in

PosterMyWall’s journey of coincidence

By Nisma Riaz

In the world of invention, serendipity often flirts with brilliance to create something groundbreaking. Take Newton and his opportune encounter with a falling apple that led to the discovery of gravity. Similarly, the popsicles, that we enjoy in the summer heat today, were an accidental creation, when an 11 year old’s experiment with soda and a stirring stick took an unexpected turn. When the concoction, which was supposed to be homemade soda, was left outdoors overnight, it froze into the world’s first Popsicle.

Then there is PosterMyWall, a startup that became a global platform known for offering marketing tools for small businesses by a fluke. This is a story about a useful online tool that was initially created to serve a purpose much smaller than the one it does now.

PosterMyWall over the years

PosterMyWall is a comprehensive marketing platform that allows small businesses and individuals to design and create flyers, social media posts and videos to promote their businesses and events.

However, that was not the initial idea

behind creating this online design tool. PosterMyWall was a product born out of necessity, in 2009 when co-Founder Ric Goell saw his daughters struggle for hours, as they assembled their volleyball team photos, icons, and text into a poster they could reproduce and share with teammates.

So, it was simply supposed to be an easier and more accessible online collage tool, functioning as an alternative to the more complex Photoshop tool for photo editing. In the absence of an online tool that delivered a high enough resolution to produce quality output at poster size, this new startup took root. In 2010, Jaffer Haider, based out of Pakistan, started working on the first proof of concept and within six months Haider and Goell launched the first version of their website.

Little did the founders know that the product they had collaboratively designed for family and personal use would soon become a platform for musicians and small businesses to design flyers to promote their events, sales and adverts. “Very quickly this market segment became the biggest on our website. They were making and buying the most designs,” Haider told Profit.

He continued, “Initially, we just had editing tools and users would bring their own photos and backgrounds. But the unexpected demographic we saw on our website got us

thinking about targeting small businesses exclusively. It was in 2012, when we started introducing design templates. We started building design templates for sales and events and music gigs and other flyers that small businesses required.”

According to Haider, PosterMyWall’s direction changed after observing user behaviour and by listening to their customers.

Fast forward to 2014, when social media took the world by storm, creating an online community that opened a plethora of new opportunities. There were ads and videos scattered all over Facebook and Instagram. This new age of digital and online marketing encouraged PosterMyWall to pivot into something new once again.

In conversation with Profit, Haider shared that, “As our name PosterMyWall suggests, when we created this tool we were looking at print products only but when the social media wave came, we quickly pivoted to include this new form of marketing that was evolving in front of our eyes. We made templates and design tools that allowed people to make Instagram posts, as well as moving posters, videos and ads for Facebook very easily, which became a poster or a flyer for the digital age.”

Now, PosterMyWall is on its way to become the one-stop small business marketing platform. In 2019, they introduced social

How did a bootstrapped Pakistani-American startup gain a globe audience?

media marketing tools, which were soon to be joined by email marketing tools by 2022.

Haider explained the reason behind offering apparatus that aids marketing, which also created a new unique focus for the company. “We took a step back and saw that yes, people are making designs but where are they putting them? They were putting these designs up on their websites, on their social media pages and sending them out as emails to their customers. So, currently, we are focused on bridging this gap between our customers and their customers. If they want to make an ad and publish it on their Instagram profile, we make it easy for them to do it right inside PosterMyWall.”

This year the company has been working to simplify the use of PosterMyWall for marketing teams, by introducing cheaper pricing for teams, as well as, tools like Content Planner and Brand Kits.

Not your average startup

The yardstick to determine the success of a startup is usually its valuation. The first thing that comes up when you discuss a new start is always whether they secured any venture capitalist or external funding.

This was not the case with PosterMyWall. Ric Goell and Jaffer Haider had always dreamed of building their own company, eversince the two had met, while working together on a Silicon Valley startup. And they didn’t want their startup to be funded by outside capital.

Since the company was bootstrapped from the beginning, their team has always been very small and the company’s revenue is dependent on its users and subscribers.

Haider believes that their expansion has been organic and not comparable with that of other startups, “Since we were boot -

Jaffer Haider, co-Founder PosterMyWall

strapped, our speed of expansion isn’t similar to what you see with other startups that have funding and are able to scale to a hundred or two hundred people over the course of a few months. Ours has been very thoughtful and we’ve been very picky with the sort of people that join our team. That’s also the reason why our retention rate is pretty well.”

Profit asked Haider to explain PosterMyWall’s business model. “Our business model is freemium SaaS (software as a service). We offer a bunch of things for free so that users are able to easily try us out. And if they like us, they can choose to pay monthly or annual subscription fees. Users can also choose to use the PAYG (pay as you go) model, where they don’t even need a subscription and they can just pay for a design that they’ve made, without making the commitment of a subscription,” Haider explained.

Haider emphasised that at PosterMyWall, they go out of their way to make sure that people can have the full experience, without signing up and paying. “They can customise any template and try out most of our features so that they can make an informed decision if they really want to buy a monthly subscription.”

The company’s main source of revenue is the fee it charges from Premium users and Pay-As-You-Go (PAYG) users. Anyone can sign up on PosterMyWall and download a basic quality image and video design for free or pay for a high quality file. However, the paid version offers users unlimited downloads and access to all premium features, such as Brand Kits and adding team members.

A Premium subscription costs Rs 590/ month, while a Premium Plus costs Rs 1990/ month. However, users can access over 1.2 million design templates, more than a million free video, image, audio and sticker stock assets, unlimited downloads of social media sizes and an easy to use online editor all for free.

PosterMyWall and its global footprint

Just like its marketing function, the global presence and user base of PosterMyWall was also unplanned. According to Haider, “Back in the early days, it wasn’t in the front and centre of our thought process that we were a global company. We were very focused on building a world class product in Pakistan. As the team has grown, we have had to maintain a high talent density. Most team members realise that they’re competing with companies that are much larger than us, so they do rise to the challenge.”

How does PosterMyWall ensure that it remains competitive in a global market that is concentrated with competition?

Haider answered this question by saying that his team does not view challenges as obstacles but as unique opportunities. “It’s great for the team, when they see that their designs are doing well globally and competing with the likes of Canva that has thousands of people in their team. It encourages us to bring our A game and make PosterMyWall as good as it can be.”

Haider shared some step the company has taken to tackle the challenge of having a diverse audience, with different tastes, preferences and cultural backgrounds.

“From a product perspective, we have always been aware that we have a global audience and we try to make it as easy and accessible for anyone in the world.”

In order to make the product accessible, PosterMyWall is offered in over 11 different languages. Moreover, Haider disclosed how their newest strategy to take on a global market is by offering localised pricing.

“Localised pricing is also something that makes the website practical to use in many countries. This means that we are essentially offering different prices in different regions.

This is an incredibly competitive space, where trends and preferences change very quickly. Listening to customers and building tools that they need should be at the heart of future planning. We are not afraid to enter new markets, we’ve done so with social media marketing and email marketing over the years. We are planning on offering website design tools down the road as well, as well as keeping up with the use of generative AI in design and marketing tools

We are entering new markets and trying to offer competitive prices, based on the purchasing power of the people there. This helps us retain customers, as well because there are many countries that have a depreciating currency against the dollar and a fixed standard price for all in dollars would make it very expensive,” Haider elaborated.

Being conscious of the customer’s needs has always been at the forefront of PosterMyWall’s values, which is exactly what they quote as their recipe for success.

Haider shared that constantly evolving as the digital world evolves and adapting to new trends helps his company stay successful. “We are working on using machine learning and AI to recommend templates based on where the user is. We do use those tools to customise user experience based on where they are. For example, if we have a user in Nepal, they are likely to see more templates that others in their country are using and if there’s a seasonal or regional holiday in Nepal, they would see more stuff relevant to that. This is also a very interesting challenge for the marketing team where they get to work on localised marketing campaigns, as well. Recently we did a localised marketing campaign in Pakistan that utilised truck art in our ads. So, our team works on campaigns for a host of regional and global holidays.”

What makes them different?

PosterMyWall does not operate in a vacuum, without threatening competition always posing a risk to snatch their market share. This becomes especially challenging when they are put in direct competition with giants like Canva.

Profit asked Haider what sets his company apart from other similar websites? He disclosed that a streamlined and focused approach helps them carve out a space for PosterMyWall on a global scale.

“All these products have a certain focus. For example, Canva is very focused on being the design tool for all. In addition to a competitive design tool that helps you create images and videos, our primary focus is on surrounding that design tool with a good range of marketing tools that small businesses need. We keep an eye on the specific areas of our expertise, which is to provide an easy, quick and affordable solution to the marketing and personal needs of businesses and individuals respectively, in terms of designing promotional content and carrying out marketing activities,” Haider relayed.

He went on to say that, at PosterMyWall, “We offer a platform to small businesses that look to improve their marketing on a minimal budget and give customers the “feel good” vibe, empowering them to be in control of their own marketing material and branding, giving them an easy way to create professional looking graphics and saving them time and money in the same instance.” A constant effort to provide easy marketing solutions to businesses helps the company stay focused on its USP.

Haider also shared about the exciting open design community that

PosterMyWall has helped to create. It is a community with more than 450 thousand talented designers from across the world, including some from Pakistan. “For some of these designers, PosterMyWall has been their only source of income and it’s inspiring to see how they keep up with global design trends and produce high quality design templates. We are proud of our vibrant design community and the key role it has played in growing our library of templates,” shared Haider.

One of the most important things to stay ahead and stay distinguished is planning and flexibility. By always looking into the future and bracing themselves with the tools to stay relevant for a quickly evolving online community, PosterMyWall retains its focus on growing and not just expanding.

According to Haider, “This is an incredibly competitive space, where trends and preferences change very quickly. Listening to customers and building tools that they need should be at the heart of future planning. We are not afraid to enter new markets, we’ve done so with social media marketing and email marketing over the years. We are planning on offering website design tools down the road as well, as well as keeping up with the use of generative AI in design and marketing tools.”

The company focuses on fostering a community that is productive and close knit. “PosterMyWall’s team here in Pakistan allows us to change directions quickly and focus on smaller bets that other larger companies might not take. We’re looking forward to expanding our team in Pakistan because there’s a great pool of talent here and we offer a great working environment, so we’re also working on expanding our team here in Lahore.”

Haider believes that there are many teams like theirs operating in Pakistan and building products that get used by millions of users around the world. There is great potential in our industry, we just need to do a better job at building Pakistan’s brand as a technology partner. n

Nation’s uncles refuse to elaborate financial advice beyond ‘earn in dollars’

By The Dependent

A crisis has emerged in the wake of the current inflationary trend when the nation’s uncles have refused to elaborate their spirited financial advice beyond ‘earn in dollars.’

“It has been a long slog and negotiations have broken down yet again,” said the nation’s nephews and nieces to The Dependent. “We don’t seem to be getting any closer to the specifics of the said earning.”

“They seem to be interpreting our demand for specifics for somehow opposing the suggestion that we should be earning in dollars,” said Imran Abbas, a

Lahore-based accounting student. “I say this because he starts showing me the rise in dollar value whenever I ask him. I’m not contesting that! Just tell me what to do!”

“He keeps calling me stupid when I ask how I should learn in dollars,” said Seher Zaidi, a Karachi-based textile designer. “That my rupee income is falling as we speak, while the dollar is appreciating. I know that, tell me how to earn in dollars, don’t repeat the problem to me!”

By the time this report was filed, the nation’s uncles have already complained to the nation’s parents that their good advice isn’t being taken seriously.