Profit E-Magazine Issue 258

CON TENTS

08

08 Just how undervalued is the PSX right now?

12 A year on: Will the hybrid match the crossover craze

18

18 India just banned exporting rice. Should Pakistan step up?

22 Renting out the agricultural sector Omar Javed Chohan

24 The PDM’s inflation index

26

26 Theft with impunity: Why businesses in Pakistan don't care about infringement laws

28 The Islamic banking boom in Pakistan

Profit

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

Just how undervalued is the PSX right now?

Even though the market has breached the 49,000 psychological barrier, is the real rally still pending?

By Zain Naeem

The market breaching the 49,000 level recently has been met with cheer and celebration. The signing of the stand by agreement (SBA) with the IMF has been considered as a positive development with the market touching a low of 39,894 on June 23rd to a high of 49,034 on 8th of August 2023. This represents an increase of 23 percent in a period of 45 days.

This comes in the backdrop of political uncertainty, record high interest rates and a challenge of belt tightening signalled by the IMF in regards to fiscal and monetary policies. The market has met with considerable

selling pressure as it tried to move past the 50,000 mark. Is this the end of the rally or is the market taking a breather before another substantial rise? Profit tries to answer.

The good old days of 2017

The last time the market touched and sustained levels above 50,000 was back in 2017. From January till May 2017, the market stayed above the 50,000 mark touching a high of 53,127 on 25th of May 2017. As the streets were reverberating with “Muhjay kyun nikala”, the market was echoing with the sounds of “Lao Maal” (this is local slang for a bull market). The market was flying high on an

optimistic sentiment and it was felt that the market trend will continue for the period going forward.

Just a year ago, the PSX had given returns of 46 percent for 2016 which was the highest return seen in any equity market of Asia and it was felt that the music would never stop. As the market entered 2017, this feeling was carried forward with people projecting that the index would cross 55,000 by the year end.

This was buoyed by the fact that Pakistan was expected to go from the MSCI frontier market index to MSCI emerging market. Through such a classification change, the market would have seen an influx of foreign investment and the index was touching all time highs based on this expectation.

Fundamentals then and now

The rally was important, primarily in the context of the companies which were seeing their rates reach new heights. Companies like Hub Co Power, Engro Corporation, United Bank Limited and Lucky Cement reached prices that had never been seen before. The companies chosen for this analysis include the top 25 companies making up the KSE-100 index which make up around 71 percent of the weightage.

Based on the prices prevailing in the market on 25th May 2017, the P/E earning ratio can be calculated for the highest weighted shares in the KSE-100 index.

Based on this P/E (Price to earning) ratio analysis it can be seen that the price multiple was hovering around 20 then. This means that if a company was making a per share profit of Rs 1, on average investors were willing to pay Rs 20 to get that one share.

When a similar analysis is carried out for the most recent results of the same companies, it can be seen that the corporate sector had a stellar year in terms of their performance.

The analysis shows that the average price multiple for these companies has gone from 20 to around 8 times the earnings. This means investors are now paying only Rs 8 for a company’s share that made a profit of Rs 1 per share.

The multiple has more than halved and for most market experts this means that the market is currently highly undervalued.

Reason behind the gap?

Yousuf Saeed, head of research at Darson Securities feels that “the market was trading at a greater P/E in 2017 than it does now, owing to higher profitability from many sectors, particularly banks and the oil and gas sector, both of which are considered heavyweights.”

There is a need to understand whether the valuations that are being seen are actually undervalued. Consider the fact that some of the macroeconomic variables have changed. The interest rates were at 5.75 percent which was the lowest they have been for more than 20 years before that.

Currently they stand at 22 percent with a possibility of at least remaining at this level for the foreseeable future due to the IMF’s pressure. This can be a reason for the level of pessimism which is bearing some pressure on the index. In addition to that, the inflation rate for 2017 was at 4.09 percent which peaked at around 38 percent in June of 2023. This could be taken as a reason

why the valuations are low compared to where they were in 2017.

Mohammad Aitazaz Farooqui, head of research at Providus Capital states how “the market was at P/E multiple of ~12x in 2017 due to exuberance related to conversion towards MSCI emerging markets index. Current multiples are around 4x. Average multiple of the Pakistani market has been around 8x. The movement towards that level depends on the solution to structural problems which might take time.”

Regardless of these two factors, the earnings of the companies are back to the levels they were in 2017 and in many cases, the earnings have jumped many folds. The earnings of many of the index constituents fell from 2020 to 2022 due to COVID-19 leading to a fall in earnings. Many of these compa -

nies have now bounced back.

Mohammed Sohail, CEO at Topline Securities

A cursory look at the table below shows that the earnings of companies have increased dramatically in the last five years and many of the companies are making profits much higher than they were doing in 2017.

Saeed feels that the market of 2023 has not responded to an increase in profits as it used to do in 2017 when the market sentiment was much different. The recent rally has been driven by the oil and gas sector primarily while cyclical sectors have not seen the same rise owing to higher policy rate, lower interest from foreigners and economic conditions hampered due to economic and political challenges.

In terms of the interest rates, it can be seen that even though finance costs for many of these companies have jumped, per share earnings (EPS) have absorbed this cost and

still increased. In addition to that, experts point towards the fact that it is inflation that has led to an increase in EPS. This can be explained away by saying that price per share is also a nominal value and as one nominal value has increased, it has not been reflected in the price of the share.

Farooqui says that the rally was induced when fears of a default subsided after the SBA was reached. As the market was trading at low valuations, the rally was due in the market; a correction of sorts after the possibility of a default was eliminated.

He adds “Banks garnered strong flows because the risk of debt structuring subsided which was an overhanging risk associated with the sector. The insistence of the IMF to solve problems related to power and gas circular debt led to rejuvenation of the energy chain. The cyclical sectors reacted well to

the assumption of easing import restrictions and opening up of the economy.”

A contrarian view

Abalancing view to the above stated thesis can be that, even though the market looks undervalued, the reality is hidden behind a complex veil. As inflation is touching sky high levels of 20 to 30 percent, the SBP has taken necessary steps in order to address this with monetary tightening. Interest rates in 2017 were hovering around 5 percent while they now stand at 22 percent.

In basic terms, in 2017, investors were looking at a return of 5 percent if they deposited the money in the bank. If they were willing to deposit Rs. 100 in their bank account, they were getting Rs. 5 at the end of the year and they were happy. In the stock market, they were also willing to buy a stock of Rs. 100 which was earning Rs. 5 in terms of their profits. This would have equated to a PE of 20. Looking at the data, the multiple was hovering around that level.

When the same analysis is carried out for the present day, depositors are earning 20 percent at the bank. If they are willing to deposit Rs. 100 in the bank, they would expect to get Rs. 20 on that deposit. If they are being asked to buy a stock in this environment, they would want a return or EPS for the company to be at least Rs. 20 in order to be willing to invest. For a company earning Rs. 20 when the share price is hovering around Rs. 100, the PE ratio comes out to be around 5.

This is exactly where the market stands right now and based on the high interest rates, it can be expected that the multiple will stay around this level. This is due to the fact that investors can get risk free returns greater than the stock market with their bank. Why would they want to invest in a risky market giving you lesser returns when the bank can give you higher returns.

The contrarian view also holds some

Valuations are at an unbelievably low level and we have seen serious investors including foreign funds returning to the market after the IMF deal. If the caretaker government maintains financial and economic discipline in line with IMF guidelines then we may see the stock market improving further

ground as inflation adjusted returns have totally been ignored till now. Even if the stock market is consistently giving a return of 15 percent, once this is adjusted for inflation, the investment has actually lost value as the inflation rate is much higher than the return. There can be an expectation that as long as inflation remains high, the interest rates will persist or even rise. With further belt tightening on the cards, it can be expected that things will get worse before they get better. With the recent increase in petroleum prices, the next MPC is expecting interest rates to increase or stay stable. This means that unless interest rates are lowered, the stock market will stay depressed until a positive signal is provided by the SBP in some way, shape and form.

Looking forward

The basic understanding of the situation as it stands points towards that the best is yet to come. The sentiment in the market might have been subdued recently due to political uncertainty relating to elections being delayed, but the core takeaway is that the fundamentals are strong.

As stability and certainty comes back to the economy, the market may respond positively to these changes. With inflation being tapered off in the recent few months, the SBP can look to cut interest rates which are at record high and are not sustainable for a long period of time. As mentioned earlier however, they may very well not change even if inflation recedes, due to the IMF insis -

tence on keeping interest rates high.

Mohammed Sohail, CEO at Topline Securities adds to the positive sentiment by saying “Valuations are at an unbelievably low level and we have seen serious investors including foreign funds returning to the market after the IMF deal. If the caretaker government maintains financial and economic discipline in line with IMF guidelines then we may see the stock market improving further.”

Saifullah Kazmi, head of investment banking at intermarket securities states that “valuations are attractive across all sectors that are thematically strong and hedged against exogenous factors, such as USD parity, commodity prices and such. Prudent and patient investment into high performing sectors, such as Banks, E&P, Export oriented companies and some high Beta plays would be a surefire way to outperform the index, which should attain a new all time high in CY23.”

In addition to that, the results of many of the companies have already started to trickle in and will be carried out from now till October end. These results are already showing a great earning season which will seep into the investor sentiment of the market itself. As earnings look to move the needle, the index can expect some bullish behavior to return to the market and even break the all time high of 53,000.

The next few months are key and based on economic and political stability, it can be expected that the index will reap benefits of a good corporate season in conjunction with the political environment of the country. When asked if he sees a policy revision from SBP, Sohail stated that it primarily depends on inflation numbers in the next few months before a policy reduction will be considered. A sustainable rally is dependent on a smooth transition to a caretaker setup and elections being held in a timely manner. n

The market was trading at a greater P/E in 2017 than it does now, owing to higher profitability from many sectors, particularly banks and the oil and gas sector, both of which are considered heavyweights

Yousuf Saeed, Head of research at Darson Securities

By Daniyal Ahmad

e are living in a golden age for Pakistani car buyers. You may have scoffed at that statement — you may have arched your brows — and you may even be dumbfounded. We are in the grip of an automotive crisis, after all. But trust us on this. Just look at how far we’ve come in the past five years. It’s a whole new world altogether.

As consumers, we have been treated to a plethora of new brands, a feat that seemed unimaginable a few years ago. We had, after all, become so accustomed to repeating the same three names like a broken record. We have witnessed the rise of the — now ubiquitous — crossover sports utility vehicles (C-SUV), and there are hints of more to come. It is in this juxtaposition of chaos and variety that we might have missed a milestone: Pakistan is on the precipice of the one year anniversary of its first locally produced hybrid — the Haval H6 HEV.

The silence around this car might be a

Whomage to the more discreet engine combustion that the company flaunts. But don’t be fooled: the market has been buzzing. The car has sold like hotcakes. It sits alongside Pakistan’s automotive elite — with the likes of the Sportage and the Fortuner, to name a few. It, like these other titans, has done something phenomenal: created an entirely new segment in the market.

So how well has the market embraced the Haval HEV? And more importantly, can it retain its crown in the midst of the current automotive revolution — are we on the edge of hybrids defining the next zeitgeist of our industry? And what about electric cars? Weren’t they supposed to be the future? Hybrid cars are passé, right? They go back to the Toyota Prius, after all — so what gives? Let’s start with the market’s reception to Haval’s HEV.

Seated next to the king

The Haval HEV boasts a formidable 1.5-litre turbocharged engine, capable of producing an impressive maximum power of 113kW, coupled with a robust 130kW motor. According to

the literature, this translates to a staggering combined power of 179KW or 240HP. In comparison, the Fortuner GR-S, equipped with a diesel engine, produces 201HP and is burdened by an additional 330 kg in weight compared to the HEV.

In addition to what’s under the hood, the HEV’s interior is replete with an array of features. The market is already well-acquainted with the car’s interior. The more economical hybrid engine makes it what is known in the industry as a ‘fully-loaded’ car.

“At present, the feedback I have received from its owners is overwhelmingly positive. It outpaces most locally assembled cars, is gentle on the wallet (being a hybrid), and boasts a plethora of features,”, exclaims Shaheel Shahzad, Co-Founder of Bloombig Overdrive.

Sazgar — the manufacturer of Haval in Pakistan — is also cognisant of the market’s fondness for the HEV even when compared to its other offerings. “We are immensely gratified with the HEV. The market has responded with unbridled enthusiasm,” exclaims Ammar Hameed, Director at Sazgar.

To interject, it’s not as if the H6 1.5 and H6 2.0 aren’t brimming with a plethora of

similar features. However, the HEV is the first locally assembled hybrid in Pakistan and represents Haval’s top-of-the-line model. Industry experts believe the HEV is more alluring to local customers who have a predilection for the top variant in any model line. This sort of customer behaviour is one that we see across the ranges provided by other companies as well.

Perhaps the most straightforward way to verify these claims would be to examine the sales figures. Haval does provide sales figures as it is part of the Pakistan Automotive Manufacturers Association. However, as most Pakistani automotive consumers are undoubtedly aware, Haval — though new — in true Pakistani automotive fashion, would rather have us do some legwork than simply provide any discernible sales data. What this means is that Haval, like the rest, provides model specific data whereby we have the cumulative sales for the H6 — we do not have specific data for the H6 HEV.

Nonetheless, as most Pakistani automotive buyers are again cognisant of, there’s another metric we can use to gauge market interest: the on-premium. For those who have never heard of this, the on-premium is the premium over the ex-factory price of a vehicle that a customer would pay to walk out of a showroom with their car of choice the same day rather than having to wait months for delivery.

This is because Pakistani automotive companies only manufacture the car after receiving an order for it. Some individuals take advantage of this production method by hoarding cars and reselling them on the second-hand market to drive up waiting times and subsequently charge higher on-premiums to prospective customers. Needless to say, the more in-demand a car is, the more it will be hoarded, and in turn, the higher the on-premium will be for it.

So, what’s the on-premium for the HEV that already costs an eye watering Rs 1.21 crore? Rs 11 lakh 77 thousand based on our calculations. Now if you think this is outrageous — which it is — it gets crazier. This is the second

highest premium after the one attached to the Fortuner GR-S — which at Rs 2 crore and 11 lakh is the most expensive locally manufactured vehicle. The Fortuner edges it out with a Rs 1 lakh higher on-premium at Rs 12 lakh and 70 thousand. However, considering that it's worth Rs 1 crore more, one might have expected the difference to be higher.

Profit looked at a total of 65 vehicle models in the Pakistani automotive space. A sample size of 30 vehicles was utilised wherever possible for each model. All in all, we looked at the prices of 1,842 vehicles in the secondary market.

Whilst looking at these vehicles, we hierarchised them in order of kilometres driven to ensure we captured as many of those vehicles that had been bought solely for earning on-premiums as possible.

As part of our findings, we discovered that the HEV was one of 35 vehicle models across all models Profit sampled that are retailing for a premium. Furthermore, it has the highest premium as a percentage of ex-factory price — 8.9%.

Employing on-premiums as a metric might seem like a makeshift solution; however, it is an undeniable reality of the market.

The metric serves as the great equaliser, with demand for the vehicle being the only thing underpinning it. In terms of customer demand alone, it is second only to the Fortuner GR-S — if not superior — based on our findings.

However, as with the other two aforementioned vehicles, creating a new market entails one thing: there are going to be new competitors on the horizon. Very soon in this particular case.

What do you do after you’ve opened the floodgates?

“We had one C-SUV come into the market, and become a market leader. Merely a year after its launch, we witnessed a surge of C-SUVs permeating the market,” says Hameed.

“Similarly, we were the first to launch a hybrid, and I foresee that in the ensuing year, you will be presented with a plethora of options for hybrids as well,” Hameed expounds.

“Despite the impending onslaught, we remain steadfast in our confidence about our

product. It’s physically the most colossal in its segment and boasts an impressive array of features,” Hameed asserts.

How well Haval can fortify its position against the impending competition, remains to be seen. The largest automotive conglomerates in Pakistan — colloquially referred to as the Big 3: Toyota, Honda, and Suzuki — are the global pioneers of hybrid technology. Toyota’s hybrid C-SUV — the Corolla Cross — is poised for imminent release. And, if memory serves, KIA also showcased their own hybrid earlier this year.

Shahzad elucidates, “The HEV has the first-mover advantage, much like the Kia Sportage once had in the C-SUV segment.” He further adds, “I believe it would be premature to predict how well the Corolla Cross and HR-V Hybrid will fare in Pakistan.” Shahzad explains that “as of late, the ‘Big 3’ haven’t launched a vehicle that has garnered an overwhelming response like they used to in the past.”

In a situation like this, one might wonder if it would have been more prudent for Haval to have just weathered the hybrid storm and proceed directly for an electric vehicle. Especially since some of its competitors have mentioned that they are bullish on electric vehicles in Pakistan.

“The market was in dire need of a hybrid vehicle,” elucidates Hameed on Haval’s decision to opt for the HEV. “With petrol prices skyrocketing, we foresee that in the coming years, other brands will also gravitate towards hybrids. Hybrid is the bridge between electric and internal combustion engines.”

“We’re not ready for electric vehicles yet,” Hameed continues. “Our infrastructure is not yet equipped to handle it. We don’t have the electricity. Overall, our country’s electricity is not up to par to sustain such a large load. If all cars were to turn electric today, it would be catastrophic for the entire country. So there will be a transition with time – the infrastructure will improve, but in the meanwhile, hybrids can serve as that bridge between electric and petrol.”

“Electric vehicles have already started

arriving in Pakistan,” Hameed adds. “But for mass adoption to occur, the price would need to decrease – it has to make financial sense for consumers to purchase the car. Worldwide, adoption will also only happen when the cost becomes reasonable, when it becomes comparable to petrol vehicles.”

“Currently, because the cost is high and customer buying power in Pakistan is limited, it will take much longer for Pakistan to transition fully to electric,” Hameed explains. “Hybrids, in contrast, are more affordable than their electric counterparts, and the fuel savings are immense – the return on investment is immediate, and perhaps even better when adjusted for local purchasing power.”

There are two aspects that warrant our attention: firstly, the precise nature of the purported cost savings by using the HEV, and secondly, the practicality (or lack thereof) of electric vehicles.

Will your wallet enjoy the H6 HEV?

To commence, it is imperative to note that the H6 HEV comes with a significantly higher price tag than its counterparts, the H6 1.5 and H6 2.0, costing an additional Rs 26 lakh and Rs 13 lakh respectively at the time of writing this article. This raises the question: how many kilometres must one traverse to recoup the difference in

cost? The base argument is that hybrids will allow customers to recoup their savings due to the reduction in fuel costs. Profit examined fuel prices across 2023, utilising the minimum and maximum prices during the year — Rs 215.74 per litre and Rs 282.9 per litre — alongside the current price of Rs 272.95 per litre. The objective? To accurately calculate both the breakeven distances and requisite savings for hybrid vehicles, to make up for the additional cost.

We used the high and low mileages for all three vehicles as listed on PakWheels. The estimated mileages stood at 10 (low) and 12 (high) kilometres per litre for the H6 1.5; 9 (low) and 12 (high) kilometres per litre for the H6 2.0; and 14 (low) and 18 (high) kilometres per litre for the H6 HEV.

Employing these numbers, Profit calculated the cost per kilometre for the HEV based on its various mileages. At a petrol price of Rs 215.74 per litre, the cost was Rs 15.41 per kilometre (low mileage), and Rs 11.99 per kilometre (high mileage). At a petrol price of Rs 282.9, it was Rs 20.21 (low mileage) per kilometre and Rs 15.72 (high mileage) per kilometre.

At the current petrol price of Rs 272.95, it was Rs 19.5 per kilometre (low mileage) and Rs 15.16 per kilometre (high mileage). At the company claimed mileage of 20 km per litre, the cost was Rs 10.79 per kilometre at a petrol price of Rs 215.74 per litre, Rs 14.15 per kilometre at a petrol price of Rs 282.9 per litre,

The HEV has the first-mover advantage, much like the Kia Sportage once had in the C-SUV segment. I believe it would be premature to predict how well the Corolla Cross and HR-V Hybrid will fare in Pakistan. As of late, the ‘Big 3’ haven’t launched a vehicle that has garnered an overwhelming response like they used to in the past

Shaheel Shahzad, Co-Founder of Bloombig Overdrive

Dr Waseem Akram, Director of the Transport Planning Unit at the Punjab Transport Department

and Rs 13.65 per kilometre at a petrol price of Rs 272.95.

Profit also took into consideration the company’s claimed average of 20 kilometres per litre due to the variability in mileage reported by users – perhaps giving it the benefit of the doubt. You are free to utilise any of these mileages in your own calculations.

To effectively recover the additional cost

Rs 1 crore and 20 lakh on a car) have an innate desire to acquire the ‘top-of-the-line’ variant in Pakistan. I believe that an average household that would purchase a Rs 1 crore and 20 lakh car would already have four cars in their garage, making it even more difficult to rationalise the decision to choose the HEV over the H6 2.0,” adds Shahzad.

Shahzad explains that, once in this price

How long can hybrids hold out till electric vehicles arrive?

The preponderance of electric vehicles being imported into Pakistan are highend luxury models. A tertiary glance of social media or import records reveals that the lion’s share of electric vehicles entering the country are manufactured by the German triumvirate of Audi, Mercedes, and BMW. Needless to say, these three aren’t famous for making the most affordable of vehicles.

The rationale behind individual importers’ decision to eschew more affordable options from manufacturers such as Kia and Hyundai remains an enigma. Similarly, it’s confounding why these companies have not taken it upon themselves to import their vehicles into Pakistan, despite having a presence in the country.

paid for the HEV, over its non-hybrid counterparts, one would need to traverse a distance ranging from 241,124 km to 128,717 km with the HEV compared to the H6 1.5, and from 120,515 km to 64,334 km with the HEV compared to the H6 2.0, depending on the mileage achieved with the HEV.

Understanding the customer

What do the numbers truly signify for a prospective HEV buyer? Perhaps, nothing at all if you’re already in this price range. “There’s an emotional component to this decision that transcends the logic behind buying the car,” expounds Shahzad.

“Many individuals with substantial disposable income (who can afford to spend

bracket, there is another facet to consider entirely — the driving experience. According to him, the H6 2.0 offers a superior driving experience compared to the HEV, and Haval could address this discrepancy in their hierarchy by releasing a hybrid version of the H6 2.0, as the current HEV is the hybrid version of the H6 1.5.

However, for both the ardent enthusiast and the circumspect buyer, wouldn’t an electric vehicle be the quintessential choice? It could potentially reap considerable savings and may be brimming with features for the aforementioned enthusiast buyers that Shahzad alludes to. Isn’t it a win-win scenario? Are electric vehicles truly as impracticable, given the current infrastructure, as Hameed contends?

If we were to rewind just a few years to when the Audi e-tron first launched in Pakistan, it was just a hair higher than the HEV’s current price. This is the price at which the car spiked in popularity, and became common on the roads of Islamabad, Karachi, and Lahore. It was only when the rupee depreciated in value that the e-tron nearly tripled in value and we suddenly saw fewer ones being purchased.

No small sized affordable all-electric options have since been introduced by either the big three, the new players or the 'Germans'. This perhaps has a lot to do with the ancillary requirements of electric cars at home and the lack of infrastructure available in the country to cater to a larger number of such vehicles on the roads.

“It’s a conundrum akin to the chicken and egg scenario: will the infrastructure be established first, or will the vehicles arrive prior to that?” ponders Dr Waseem Akram, Director of the Transport Planning Unit at the Punjab Transport Department. “I believe that, as in India, the State will ultimately have to intervene to facilitate the launch of electric vehicles,” he continues.

TEXTILES

Until sufficient fiscal space is available for the State, private companies introducing electric vehicles will create the necessary infrastructure. Currently, this is based on demand.

Cities such as Lahore and Islamabad already have sizable populations of electric vehicles, hence infrastructure exists there. Where it doesn’t exist is where there isn’t any demand

This is not an insurmountable task for the State to accomplish either. “They could mandate petrol pump owners to incorporate electric charging stations into their existing infrastructure,” argues Dr Fiaz Chaudhry, Director of the LUMS Energy Institute. “They already offer diesel and petrol, so why not cater to electric four-wheelers as well?” he adds.

“Furthermore, amidst the current fiscal the country may not be able to import electric vehicles en masse,” Akram adds. “To ensure equal access to their desired electric vehicle, the federal government would have to liberalise imports; otherwise, access will remain limited to enthusiasts. Does the federal government have the fiscal space and forex reserves to do this?” Akram asks.

“Until sufficient fiscal space is available for the State, private companies introducing electric vehicles will create the necessary infrastructure,” Akram continues. “The current infrastructure is based on demand. Cities such as Lahore and Islamabad already have sizable populations of electric vehicles, hence infrastructure exists there. Where it doesn’t exist is where there isn’t any demand,” he adds.

“It is the government’s duty to create an

Fiaz Chaudhry, Director of

enabling environment; the private sector will capitalise on it. If the government were to give a commercial model to pump owners — say a 1% discount on a certain delivery of fuel in exchange for them setting up an electric vehicle charging station — you would be surprised at the rate at which the pump owner would comply,” Chaudhry continues.

“As the hybrid vehicle market flourishes,

manufacturers will inevitably be confronted with developing a robust electricity infrastructure. After all, plug-in hybrids necessitate such infrastructure,” Chauhdhry muses.

The conundrum of plug-in-hybrids is a crucial one. If we consider hybrids as the transitional link between petrol and electric vehicles, then it stands to reason that plug-ins represent the final frontier before we traverse that bridge. Right?

The next best thing, for the time being

This is indeed a conundrum that manufacturers will have to grapple with. Plug-in hybrids represent the next evolutionary step in the conventional hybrid portfolio for many manufacturers. If they invest in electrical infrastructure to support plug-in hybrids, wouldn’t it be prudent to take the leap now and catapult the industry into the realm of electric vehicles?

It could even provide the first company to do so with a significant first-mover advantage.

“Transitions require time to come to fruition. The discourse surrounding hybrids suggests a desire by those in the petrol engine value-chain to continue selling their traditional engines while also incorporating batteries into their vehicles,” says Chaudhry.

One thing remains unequivocal — there is no definitive timeline for when electric four-wheelers will dominate the market. Perhaps Haval will release the first vehicle in this segment, or maybe KIA will once again pull off a surprise? As consumers, we stand to benefit either way. This is a far cry from the days when our choices were limited to the Big Three.

However, until the dust settles on this debate, we have a new inductee into our automotive hall of fame — albeit a costly one. But then again, the market seems to be clamouring for an even more exorbitant version of the vehicle. n

AUTOMOTIVE

As the hybrid vehicle market flourishes, manufacturers will inevitably be confronted with developing a robust electricity infrastructure. After all, plug-in hybrids necessitate such infrastructure

Dr

the LUMS Energy Institute

We were the first to launch a hybrid, and I foresee that in the ensuing year, you will be presented with a plethora of options for hybrids as well

Ammar Hameed, Director at Sazgar

India just banned exporting rice. Should Pakistan step up?

By Abdullah Niazi

In 2022 India exported over 22 million tonnes of rice to the entire world. As the single largest exporter of white rice in the world, India control’s a massive 40% of the global market for rice providing different kinds of rice that many other countries in the world are heavily dependent on for their caloric intake.

And this year the Indian government has put a ban on the export of all kinds of rice except the aromatic and high-end Basmati variety. The ban comes in response to soaring rice prices in India and a general food inflation crisis that has been brewing in the country.

As a result, the international rice market suddenly finds itself short on more than 10 million tonnes of rice. With a global food crisis already about to reach crescendo because of the

Russia-Ukraine war, rice importing countries and international organisations are suddenly faced with a concerning question: how will this massive shortfall of rice be met?

Already the news of India’s rice ban has resulted in supermarkets facing panic buying all the way in the United States and other countries that rely on Indian rice. Some other countries that are also exporters may also follow suit with a ban to protect their own domestic markets. So who will take the opportunity?

Well, possibly Pakistan. While India might be the largest exporter of rice with Thailand at a distant second place, Pakistan is number four on the list of largest rice exporting countries in the list with Vietnam in the middle at number three. In 2022, Pakistan’s total rice production was just over 5.5 million tonnes and the total export was around 3.5 million tonnes. This year, with a good harvest, Pakistan could have a much bigger market to

export its rice to.

But why is India not exporting rice this year, and more importantly, how can Pakistan best utilise this situation?

India’s export ban

The announcement came last month, when on the 20th of July the Indian government quietly made the announcement that it would not be exporting rice other than the Basmati variety. The Indians claimed they were doing this to tame surging domestic food prices and “ensure adequate domestic availability at reasonable prices.”

But the results are not pretty. The impact on prices of the world’s most consumed staple has been swift, hitting 15-year highs. Limited supplies risk a further spike in the price of rice, and global food inflation, hitting impoverished consumers in Asia and Africa, analysts and traders said. Food importers are already grappling

with tight supplies caused by erratic weather and disruptions in Black Sea shipments.

Global rice prices, as tracked by the United Nations’ Food and Agriculture Organization (FAO) All Rice Price Index, rose 2.8% in July, or 20% year-on-year, to their highest level since September 2011. Indica rice, the primary crop grown in India and other parts of South Asia, accounts for roughly 70% of the global rice trade.

The FAO warned that the price rise “raises substantial food security concerns for a large swath of the world population, especially those that are most poor and who dedicate a larger share of their incomes to purchase food.”

The broader FAO Food Price Index, which tracks a basket of food commodities including rice, cereals, dairy, and meat products, rose a more modest 1.3% from June and fell 11.8% from year-ago levels.

“Thailand, Vietnam, and other exporting countries are poised to step up their game,

all in a bid to bridge the gap stemming from India’s shortfall,” said Nitin Gupta, senior vice president of Olam Agri India, was quoted as saying by Reuters. Olam Agri is one of the largest rice exporting companies in the world.

As a result, rice exporters will be unable to increase exports by more than 3 million metric tonnes a year as they try to fulfil local demand amid limited surplus. At the same time the rice market in India is facing a serious jolt. According to an Indian research institution, ice planting in India could fall by as much as 5%.

According to a statement issued by a leading farmers’ group close to the ruling BJP, New Delhi’s decision to ban non-basmati white rice exports will cut farm income and encourage growers to switch to other crops.

The decision has sent waves even within farming groups sympathetic to the government. “The rice export ban was announced right in the middle of the current planting season, and that’s why the decision has sent a wrong signal to farmers,” Mohini Mohan Mishra, general secretary of the Bharatiya Kisan Sangh (BKS), said in a statement.

Despite this, it seems that soaring inflation left the government with no option but to enact the export ban. Earlier, the government had tried placing a 20% duty on exports as a deterrent to rice growers and exporters so that they would focus on the local market and help bring food prices down in the lead up to both federal and state elections next year.

Global rice market dynamics

While India’s decision is causing plenty of domestic angst, it is also a bright opportunity for other rice exporters to take charge. There are thousands of varieties of rice that are grown and consumed, but four

main groups are traded globally. The slender long grain Indica rice comprises the bulk of the global trade, while the rest is made up of fragrant or aromatic rice like basmati; the shortgrained Japonica, used for sushi and risottos; and glutinous or sticky rice, used for sweets.

China, the Philippines, and Nigeria are primary purchasers of rice. Meanwhile, nations such as Indonesia and Bangladesh, often termed “swing buyers”, increase their imports when facing domestic supply deficits. Rice consumption is not only high in Africa but also on the rise. For countries like Cuba and Panama, rice is a principal energy source. In the previous year, India shipped 22 million tonnes of rice to over 140 nations. Out of this, the more affordable Indica white rice accounted for six million tonnes. For context, the global rice trade is estimated at 56 million tonnes.

Thailand, Vietnam and Pakistan, the world’s second, third and fourth biggest exporters, respectively, have said they are keen to boost sales since demand for their crops has been rising after India’s ban. According to initial reports there is a major role for Pakistan to play in this crisis. But will the Pakistani government bite? Pakistan, recovering from last year’s devastating floods, could export 4.5 million to 5.0 million tonnes according to an official with the Rice Exporters Association of Pakistan (REAP). But already REAP is worried that since food inflation is already pretty high in Pakistan, the government might not be so keen on exporting rice since it will become expensive on the global market.

Fighting our own demons

The situation is tricky for Pakistan. On the one hand there is an opportunity to export rice and earn foreign exchange - something for which rice

growers will be very keen. On the other hand, there is the very real possibility that if a vast majority of our rice gets exported, prices in the domestic market will rise sharply. Pakistan is already reeling from inflation.

A day after the country’s national assembly was dissolved, the ministry of finance said that Pakistan was facing five major and persistent economic challenges, resulting in rising poverty and social vulnerabilities. Rising inflation, particularly food inflation –– the highest in the history of Pakistan ––increase in administered prices of petroleum products, electricity, and gas and continuous depreciation of the country’s currency. All this will have a negative impact on household consumption leading to greater poverty, particularly in rural areas, the ministry highlighted.

It is a question that other major rice exporters are also grappling with. Both Thailand and Vietnam emphasised that they will ensure their domestic consumers are not hurt by rising exports. “It’s unacceptable for a rice-exporting country to face tight supplies and high domestic prices,” Vietnam Minister of Industry and Trade Nguyen Hong Dien said last week.

It must be remembered here that Pakistan has the opportunity to take some of the Indian market away not in the long-term but just this year in particular. India is facing high food inflation for the same reason that the rest of the world is: the Russia-Ukraine war. Next year, if India is not facing similar food inflation, they will be back to take their place as the biggest rice exporter in the world. The question that faces policy makers is whether or not a one time export boost is worth the immediate pain that short term inflation will cause the public. Since it is caretakers that will be taking these decisions, there is no question of electability here but a simple matter of cost-benefit analysis that the finance ministry will have to do.

India’s inflation rose to 4.8% in June on the back of soaring food prices — still within the central bank’s inflation target of between 2% and 6%. However, inflation “threatens to come in at 6.5% in July,” HSBC estimated in a report dated July 24. HSBC economists cautioned that extreme weather events could further put a strain on crop output.

That is exactly what happened. Inflation peaked at 6.40% in July, breaching the Indian central bank’s upper limit of 6%.

Wheat prices jumped after Russia

withdrew from the Black Sea grain deal. Under the agreement, Moscow agreed to allow Ukraine to continue to export grain in a bid to prevent a global food crisis following the war on Ukraine. But the Kremlin pulled out of the deal in July, claiming promises made to Russia under the deal were not met.

Could Pakistan pull it off?

Pakistan cannot come near fulfilling the world’s rice demand.

The total shortfall from India’s decision to ban the export of varieties other than Basmati (which is a big seller) has caused a 10 million tonne shortage. Pakistan’s overall production was only 5.5 million tonnes last year. But that was a bad year because of lasting damage and water logging from the 2021 floods. This year the country is expecting a harvest of over 9 million tonnes which could mean exports of 4.5 million to 5 million tonnes if half the total production is exported.

The rice sector in Pakistan is extremely important in terms of export earnings, domestic employment, rural development, and poverty reduction. Rice is an important food as well as cash crop in Pakistan. It accounts for 3.0 percent of the value added in agriculture and 0.6 percent of GDP. After wheat, it is the second main staple food crop. During 2018-19, rice crop area decreased by 3.1 percent (to 2,810 thousand hectares compared to 2,901 thousand hectares the previous year).

The problem is that for any long-term change Pakistan needs to make significant amendments to its agricultural systems. This year could have been a great opportunity to find new markets for the export of rice but instead Pakistan will only be a stop-gap solution at best because it is uncompetitive.

Despite significant improvement in yield during the 2000s, Pakistan has lost the competitive edge in basmati as indicated by its plummeting shares in total basmati export from 46% in 2006 to less than 10% in 2017, which was conveniently picked up by its competitor India. Pakistani basmati exports also

declined by 45% in absolute terms during the period. This declining competitiveness is due to a number of factors that favoured India than Pakistan during the period, including stronger technological innovations which gave higher productivity growth in basmati that have more elongated kernel size without aroma, and lower production costs due to high input subsidies. According to a 2020 study of the planning commission, for Pakistani rice to become competitive on the international market it needs six interventions: i) gradual shifting to mechanical rice transplanting which is needed for increasing plant population and long awaited productivity enhancement issue of the area; ii) diffusion and adoption of high yielding varieties in the area which is required to replace the varieties like basmati-386, Supra, Supri, etc.; iii) introducing improved crop management practices as large gap between average and progressive farmers’ yield and associated variations in crop management practices can be noticed across farms; iv) shifting to rice combine harvesters which are essentially needed to control harvest and post-harvest losses in milling and address the problem of burning of rice straw; v) introduction of paddy drying at farm level in order to improve the quality of paddy and its by-products; vi) introduction of rice bran oil to diversify rice value chain.

This year the government will have to make a difficult call on the issue of rice exports. Increasing exports might not be worth the headache of increased inflation in an already brutal inflationary cycle, especially if the same cannot be repeated next year, but there is the foreign exchange earning consideration as well. n

Omar Javed Chohan OPINION

Renting out the agricultural sector

There are two major changes taking place in Pakistan’s agriculture sector as we speak. The first is the recent decision of the Lahore High Court striking down an earlier order in which the court had stopped the transfer of land to the Pakistan Army for corporate farming on a 20-year lease.

The second development was the announcement by Prime Minister Shehbaz Sharif, who was flanked at the event by the top military leadership, of the Green Pakistan initiative. With both of these projects it seems that the country’s top leadership and policymakers are all focused towards the agriculture sector now and are trying to look towards extracting as much from the land of Pakistan and exporting it.

But where is this new passion coming from and what is with the obsession with exporting, and in particular exporting to the Gulf countries? Let’s look at the background behind these two major developments and what they tell us about the future.

First the recent LHC decision regarding the military being allowed to conduct corporate farming on government owned land. A few months ago the Punjab government had notified the allotment of over 45,267 acres of Punjab land to the army in three districts — Bhakkar, Khushab, and Sahiwal — for a corporate agriculture farming project. The allotment came after, on February 8, the director general of strategic projects of the Pakistan Army wrote to the Board of Revenue in Punjab requesting it to grant up to 1 million acres of state land in Punjab for "corporate agriculture farming."

For the project, the military proposed the immediate release of 10,000 to 15,000 acres of irrigated land, followed by 100,000 acres by March 1st and then the rest of one million acres by April. A month later, the Governor of Punjab and the Pakistan Army signed a joint venture agreement to lease up to 1 million acres of state land in Punjab to the army for corporate agriculture farming, for a period of 20 years. The agreement also finalised a profit-sharing mechanism, under which 20% of the profits earned from the venture will be used for research and development, while the remaining profit will be divided 50-50 between the government of Punjab and the army.

The million dollar question being why the army has to get into corporate farming and why the government cannot itself develop existing farmers and train them in best practices. The same problem exists with the Green Pakistan Initiative which the PM claimed would bring about an agricultural revolution and create four million jobs. The PM said gulf countries were ready to invest in the agriculture sector and bring modern machinery to boost crops production. “Pakistan needed political stability to attract investment as in an unstable environment investors shy away,” he asserted. Pakistan could attract investment of $ 40 to 50 billion in the coming years and it could make food exports to the gulf countries which were presently importing food products worth $ 40 billion, the PM added.

But are we not focusing on developing our own systems and intent on exporting food to gulf countries? With a population of 249 million and a forecasted population of 403 million in 2050, can we really afford to export food when we won't even be able to cater to the local population. The intent may be right in terms of developing the sector, but the end result which focuses more on collaboration with Middle Eastern governments who are securing the food supply for their population is one which is ill advised.

The writer is a practising agriculturalist with an avid interest in the economy and entrepreneurship

The Government and stakeholders are advised to invest in local farmers, upgrade their skills, invest in machinery and develop best practices for ensuring that future generations in Pakistan benefit from this instead of such short term measures which may increase exports and generate revenue but maintain the status quo for the majority of the population.

The PDM’s inflation index

By Bakht Noor

Pakistan’s poverty rate is expected to reach 37.2% this year, according to a recent report of the World Bank. This has of course been part and parcel of the last year where prices of essential commodities such as food and energy have risen dramatically.

And while this runaway inflation has been the result of a combination of international market determinants, bad policy making, and a debt repayment timeline that is finally catching up with Pakistan much of it has worsened since August 2022 when the recently concluded coalition government of Prime Minister Shehbaz Sharif first came into power.

The PDM government’s tenure has been eventful to say the least. From policy tightening, devastating floods, import restrictions, excessive borrowing, rising fuel costs and political uncertainty- we have seen it all. This has culminated in crippling foreign reserves and increasing inflation, which have led the country towards an economic disaster.

Even while the country’s state bank has tried to curb inflation by raising its benchmark interest rate to a record-high 22%, prices have continued to skyrocket leaving the purchasing power of most badly dented. As a result Pakistan has failed to meet any economic growth targets for the fiscal year 2022-23, with gross domestic product (GDP) growth at 0.3%. Foreign exchange reserves have dwindled to just $3.5bn, roughly enough for three weeks of imports.

At the end of his more than year-long run in office, Prime Minister Shehbaz Sharif seems to be regurgitating the same old lines he was

taking back when he first came to power. In a long tweet the PM highlighted the challenges faced by his government, blaming the previous PTI government for having a legacy of economic turmoil and disruptions in global fuel and food supply lines. But just how bad of a picture does the PDM government leave on the inflation front?

The Inflation Picture — more than one reason

Several factors have contributed to inflation in Pakistan. To begin with, Pakistan had persistently been facing a balance of payment crisis, leading to a severe devaluation of the Pakistani rupee. Consequent-

ly, prices of imported goods increased drastically, leading to an increase in the general price level. As a country that is heavily reliant on oil imports, the situation became particularly detrimental.

First and foremost, the PDM government increased petrol prices for up to Rs 84 per litre. Previously in March 2022, the former PTI government had given a Rs 38 billion subsidy on fuel, and planned to purchase oil from Russia at 30% less price as compared to that of the global market (similar to India that has already been purchasing cheap oil from Russia). This was however in violation of the IMF agreement which required Pakistan to raise energy prices. When the PDM government came to power, Finance Minister, Miftah Ismail announced the fuel hike in attempts to reduce the fiscal deficit and resuscitate the IMF loan. The prices of high-speed diesel (HSD), petrol,

The situation is as bleak as it gets and the future government will be engrossed in an uphill battle in providing a lifeline to the sinking economy

kerosene, and light diesel oil (LDO) rose by a massive 83%, 56%, 73%, and 68.4% respectively in the subsequent months.

Inflation has been on an upward trend since early this year after the government took painful measures as part of fiscal adjustments demanded by the IMF to unlock stalled funding.Inflation clocked in at 35% in March, fuelled by a depreciating currency, a rollback in subsidies, and the imposition of higher tariffs to secure a bailout package of $1.1bn from the International Monetary Fund.

Inflation in Pakistan continued to rise. According to recent official figures, the consumer price index (CPI) was put at 35.4% year-on-year in March 2023, compared to the increase of 31.5% in the previous month and 12.7% in March 2022. A Dawn article reported that the multi-decade-high rate was primarily driven by soaring food and fuel prices.

Prices- Then and Now

By May 2023, the annual inflation rate had risen to 38% according to the Pakistan Bureau of Statistics (PBS), which set a national record the second month in a row. In the meanwhile, talks regarding a crucial bailout with the IMF stalled, raising the risk of defaulting on debts.

According to PBS, Pakistan’s CPI in April 2023 was at 36.5%- already the highest in the country as well as the South Asian region. An Al Jazeera article reported that Sri Lanka, which was gradually recovering from a twoyear economic crisis, posted annual inflation at 25.2% in May. The month-on-month rise in May was 1.58%- food items such as vegetables, pulses, wheat, flour, rice, eggs, chickens as well as fuel and gas prices had caused the increase.

When the PDM government came to power, petrol and diesel were priced at Rs 150 per litre and Rs 160 per litre respectively, whereas the same are now being sold at Rs 273 and Rs 273.40 respectively. Likewise, the rate of per unit electricity has increased from Rs 16

to Rs 60 during the period- roughly an increase of 275%.

More specifically, the prices of vegetables, meat and other food items saw striking increases over preceding months. A plethora of factors have resulted in this, including a deval-

ued rupee, higher production costs for farmers and disrupted supply-chains.

In the same vein, there has been a dramatic increase in the prices of food items such as flour and sugar. Previously sold at Rs 1300 per bag and Rs 85 per kg, flour is now being sold at Rs 3300 per bag while sugar at Rs 170 per kg. Furthermore, when the PDM government took control, the price of one roti was Rs 10, but is now Rs 30.

According to the Milkmen Union, the price of a buffalo in the open market, which was Rs 240,000 about 16 months ago, has gone up to Rs 600,000. “Fodder prices have also increased by 500 per cent,” he said, terming them the main reasons behind the milk price hike.

Nanbai Association President Shafiq Qureshi said: “In these 16 months, the price of flour has increased by 500 to 600 per cent and the price of electricity and gas for the oven has also increased by 1,000 per cent.” The situation is as bleak as it gets and the future government will be engrossed in an uphill battle in providing a lifeline to the sinking economy. n

Theft with impunity: Why businesses in Pakistan don’t care about infringement laws

How serious is copyright and trademark theft and how to fix it?

By Shahnawaz Ali

Imagine working your entire life to build a company, a brand. And when you have finally built a business and a reputation, someone just swoops in, takes your business’ name and starts pawning it off as their own. Even worse, they steal intellectual property; a recipe, a code, even a piece of music. Something that is truthfully yours.

From a coffee stall on a hill station to the up and coming software houses, Pakistanis take intellectual property as a joke. The system supports those that look past it and of all the problems that plagues the market; copyright and trademark theft is looked at as no crime whatsoever.

But what does the stealing of intellectual property entail? How is it categorised as stealing and how does it harm businesses and the country?

Trademark theft?

We all know that when we see a big golden “M,” it means the food is from McDonald’s.

Not only us, the majority of the people around the globe know this for a fact. Now, imagine if someone started using the same golden “M” to sell their food, even though they’re not McDonald’s. That’s not fair because it can confuse people. A person would walk into the store thinking of getting their favourite big mac, a burger that Mcdonald’s has spent years marketing and specialising but in turn would receive a cheaper, possibly worse-tasting version.

The problem here is that the owner of this fake Mcdonalds is reaping the benefits of a sale, which was paid for by Mcdonald’s in marketing and research.

Trademark theft is when someone uses a company’s special name or symbol without asking, and they try to trick people into thinking it’s from that company. It’s like pretending to be someone you’re not.

Some of the common ways in which it is done is Counterfeiting, Trademark Hijacking, Domain name Hijacking, or simply Passing off.

Copyright theft?

Copyright theft is an even more rampant problem in Pakistan. Women’s clothing brands are an example. The larger design houses come up with exclusive prints to sell. What a majority doesn’t know, however, is that those and many other prints across brands, designer firms and even boutiques are not only copied, but printed in bulk in textile companies and are easily available across local markets in garment stores. And this is just the beginning of how it is happening.

Ever noticed how all motorbikes manufactured in Pakistan have more or less the same design?

These actions not only erode the revenues of local and international designers but also disrupt the ecosystem of creativity that drives the industry. Similarly, allegations of copying software codes have cast a shadow over the software development sector, undermining the value of proprietary software products and deterring potential foreign investors.

Copyright theft, copyright infringement or piracy, encompasses the unauthorised use, reproduction, distribution, or adaptation of copyrighted materials. Within the diverse sectors of Pakistani industries, this issue takes on various forms, ranging from textiles and software development to entertainment and literature. The implications of such acts resonate not only ethically and legally, but also resonate deeply within economic realms.

From Plagiarism, to piracy, copyright infringement might just be the most commonly committed crime that happens in Pakistan without any ramifications.

Blurred lines

This doesn’t always mean that anyone’s work that has a resemblance to someone else’s work is infringement. For example; let’s say a fast food joint sells fried chicken strips with a particular crunchy outer, called zinger strips. Does that forbid all fast food joints to make such a

dish? No. But does it stop them from naming their dish “Zinger strips”? It most likely does. Imagine you draw a picture that looks like another one you’ve seen before. Is it a copy or just a coincidence? Sometimes, artists unknowingly make similar things, and the “Copyright Guardian” has to figure out if it’s a mistake or something more serious.

An even more confusing case is that of parodies. Parodies are an attempt at humour through comedic imitation of something original, most likely mainstream, culturally prevalent and well-known, in most cases. But the tricky part is, if the joke goes too far, it might not be funny anymore. Parodies often involve using copyrighted material for humour or commentary. While some parodies may be protected under fair use, others might cross the line into infringement.

A prominent example of that is the famous coffee shop in Karachi and Islamabad by the name of “Sattar Buksh”. While the global brand, the Seattle based US coffee behemoth Starbucks has so far avoided the Pakistani market for various reasons, ‘entrepreneurs’ here decided to make a joke, depicting a moustached man on their logo in place of the iconic siren. They made a play on the brand’s name, comically equating it to a local man’s name.

Allegedly, they got served with a legal notice from the global brand. The management of Sattar Buksh has been reached out to for the purpose of comment by this scribe but to no avail. Sattar Buksh, is still however, one of the examples of the blurred line that is, parody in trademark laws.

Some other examples are those of fanart, and unintentional infringement. Both of which would also be up for litigation if they were ever moved against.

Economic ramifications

There is a large global debate around brand equity being a part of a company’s financial statements. Even though there is no progress in

attempts to quantify a brand’s value, it does draw serious conclusions about copyright and trademark theft. It means that by doing this, one would essentially be stealing off from a company’s equity.

But for a country like ours, the implications of copyright theft go beyond immediate financial losses of private stakeholders. Intellectual property serves as a catalyst for innovation, playing a pivotal role in driving economic growth.

When businesses engage in copyright infringement, they disrupt the creative ecosystem that is essential for progress. The act of copying not only stifles the original creators’ motivation to innovate but also deters potential investors who fear their investments might be compromised due to weak IP protection.

Furthermore, copyright theft can strain international trade relations. Countries with high levels of copyright infringement may face sanctions or restrictions on their exports, negatively impacting economic growth and global standing. This creates a vicious cycle where the nation’s reputation is tarnished, discouraging foreign investment and collaboration.

Understanding intellectual property as an asset is crucial. It encompasses intangible creations like inventions, literary and artistic works, designs, symbols, names, and images used in commerce. These intangibles hold intrinsic value that can be leveraged for economic gain. Just as physical assets like real estate and machinery contribute to a company’s worth, intellectual property assets contribute significantly to a business’s overall value.

Pakistan doesn’t care. Why?

There are several factors that converge to give rise to copyright theft within the Pakistani business landscape. Economic challenges, deficient legal enforcement, lack of awareness, and deeply ingrained cultural norms are

Kabir,

just some of the reasons that have collectively contributed to the persisting problem.

On top of that are Pakistan’s economic challenges. The ebb and flow of Pakistan’s economic conditions have left some businesses grappling with financial constraints. Consequently, copyright theft becomes a tempting route to circumvent the expenses associated with acquiring proper licences and permissions. Not to mention the amount of red tape and rent seeking one has to navigate to get something of the sort legalised.

Therefore, even while intellectual property laws are in place, enforcement remains inconsistent. This vacuum inadvertently cultivates an environment where copyright infringement can thrive, largely unimpeded.

Not having to spend the time and money on coming up with an original idea, building it into a brand and marketing it profitably is also a very enticing shortcut for so-called ‘entrepreneurs’.

Another major reason why it remains rampant is a lack of awareness. A significant number of businesses, particularly smaller enterprises, lack a comprehensive understanding of intellectual property rights and the repercussions linked to copyright infringement.

On the condition of anonymity, a business owner who has set up shop by the name of a renowned middle eastern fast food chain said that, “People love our product, sometimes even more than they loved the original. If we were doing something wrong, the police would have shut down our shop by now. I have worked in the real chain for a number of years and I am not lying to the people in terms of what I sell”.

Ironically, lying is exactly what trademark infringers are doing.

This unawareness fuels a cycle of misappropriation. Historical norms of replication in certain industries, such as fashion and textiles, have perpetuated a culture of copying. To overcome these deeply entrenched patterns becomes a much more formidable challenge.

How will they care?

“Enhancing intellectual property laws and their enforcement mechanisms should be a priority. This includes establishing clear guidelines, increasing penalties for copyright infringement, and streamlining the legal process for pursuing cases.” says Ali Kabir, a copyrights and Trademark lawyer from Karachi, while talking to Profit.

On top of that, collaborative efforts among government bodies, educational institutions, and industry leaders can pave the way for comprehensive awareness campaigns. These campaigns should elucidate the value of intellectual property and the far-reaching consequences of its infringement.

One of the ways to counter this problem is that the government provides financial incentives such as grants and tax breaks for businesses that invest in research, development, and innovation. This approach encourages companies to create original works, reducing the temptation to engage in copyright theft.

Partnering with international organisations, governments can access expertise and best practices in intellectual property protection. This collaborative approach facilitates the development of effective strategies against copyright theft.

The prevalence of copyright theft within Pakistani businesses demands a comprehensive strategy that addresses legal, cultural, and economic aspects.

Recognizing intellectual property as an invaluable asset is essential for fostering innovation, promoting economic growth, and respecting the hard work of creators. By proactively tackling copyright infringement, Pakistan can pave the way for a future where intellectual property is revered, creativity thrives, and the nation’s economic landscape flourishes.

In this journey, a collaborative effort involving governments, businesses, educational institutions, and society at large is pivotal to creating a sustainable and innovative future.

Enhancing intellectual property laws and their enforcement mechanisms should be a priority. This includes establishing clear guidelines, increasing penalties for copyright infringement, and streamlining the legal process for pursuing cases

Ali

Copyrights and Trademark lawyer

The Islamic banking boom in Pakistan

Religious convictions and a conducive environment propel a surge of Islamic banking in the financial landscape of Pakistan

By Mariam Umar Farooq

Islamic banking, often known as Islamic finance or Shariah-compliant finance, encompasses financial activities that are in harmony with the principles of Shariah (Islamic law). At its core are two pivotal principles that set it apart: the prohibition of engaging in interest-based transactions and the emphasis on sharing both profits and losses. This financial paradigm, rooted in religious convictions, has experienced a remarkable surge, particularly in recent years according to a report by PWC.

Pakistan is the second-largest Muslim nation after Indonesia. With religious factors leading the way, Pakistan’s Islamic banking industry has received overwhelmingly positive responses from the populace.

Beyond mere statistics, Pakistan’s Islamic banking portfolio has triumphed in capturing a substantial market share, significantly altering people’s financial inclinations. In a nation where deeply held religious beliefs shape lives, Islamic banking isn’t a mere financial alternative; it symbolizes a genuine alignment of personal values and economic choices.

Islamic Banking Industry in Pakistan

Up until December 2022, the Islamic Banking Industry comprised 22 Islamic Banking Institutions which include 5 full-fledged Islamic Banks (IBs) and 17 conventional banks, which make for approximately 80% of the total banking industry, having Islamic Banking Branches (IBBs). The five completely Islamic banks included Meezan Bank, Bank Islami, Al Baraka Bank, Dubai Islamic Bank and MCB Islamic Bank.

In early 2023, Faysal Bank converted into a

full-fledged Islamic bank increasing the number of full-fledged Islamic banks to six.

The concept of Islamic banking was introduced roughly two decades ago. Since that pivotal introduction, the Islamic banking industry has grown remarkably. In terms of its footprint, Islamic banking holds approximately 20% of the total assets within the financial sector. This translates into a figure of approximately Rs 7 trillion. This influence extends even further, claiming a substantial 25% share in advances (loans to the private sector), around Rs 3 trillion. It also accounts for a 22% share of deposits of the overall banking industry, amounting to around Rs 5 trillion.

Demand for Islamic Banking

Religious sentiment plays a huge role when it comes to availing banking services. In fact, the Global Findex Database 2021 reveals a fascinating insight - for many, opening a bank account isn’t just about economics, but about staying true to one’s faith. One of the commonly cited reasons

for not opening a bank account was religious factors. That is, people avoided opening bank accounts because they wanted to avoid interest rates. The present trajectory of deposit accounts in Pakistan’s banking landscape is a direct reflection of this phenomenon. A commanding 41% of total deposits are held by current accounts, a fact deeply rooted in the religious fabric. These accounts refrain from offering interest, aligning seamlessly with the prevailing beliefs of the majority populace.

Irfan Siddiqui, President and CEO of Meezan Bank Limited asserted that Islamic banking has resulted in financial inclusion. He said, “Islamic banking has added considerably to financial inclusion. As the pie is getting bigger, this does not mean the share is being taken away from the conventional banking system, it is actually adding new deposits to the industry.”

A comprehensive study orchestrated by the State Bank of Pakistan and the Department for International Development, UK, unravels fascinating insights. It paints a portrait of preference among sole proprietors, with a notable inclination towards Islamic banking. Impressively, 62% of the banked population and 45%

of those not yet incorporated into the banking fold express a willingness to invest more in Sharia-compliant products. An astonishing 74% of those already within the banking ambit display openness to transition to Islamic banking, underlining the allure it holds.

Finally, 64% of businesses prefer financing on a Profit and Loss Sharing (PLS) basis. PLS-based financing is a Sharia-compliant form of equity financing such as mudarabah and musharakah. Mudarabah refers to “trustee finance” or passive partnership contract, while Musharakah refers to equity participation contracts. The premise underlying PLS is the concept of shirkah (similar to a joint venture) in which the partners share in the profit and loss based on their ownership.

These research findings along with an increasing share of Islamic banking in the banking ecosystem of Pakistan indicate not just recep-

tiveness but also support for the Riba-free banking system, reinforcing the promising prospects of the industry. “There is an inherent customer preference for switching to Islamic banking. Not only is the unbanked market available, but the conventional market is also transitioning to Shariah-compliant banking,” commented Mr. Yousaf Hussain, President & CEO of Faysal Bank Limited.

Role of Central Bank

One factor contributing to the strong growth momentum is the State Bank of Pakistan’s (SBP) crucial role in creating an enabling environment. SBP is actively involved in the promotion and capacity building of IBIs in addition to establishing an accommodating regulatory and supervisory framework. SBP has also taken the initiative to issue

rules and guidelines to level the playing field for IBs. Along with these activities, the government has put up a variety of regulations and rewards to promote Islamic banking.

The SBP’s Islamic Banking Strategic Plan 2021–2025 is one such initiative. This plan calls for increasing the Islamic banking sector’s share of assets and deposits to 30% of the overall banking sector. It also calls for increasing the total Islamic banking sector’s branch network to 35 percent of the total banking network. Moreover, it also requires raising the private sector financing for Small and Medium Enterprises (SMEs) to 10 percent and for agriculture to 8 percent within the Islamic banking sector.

Federal Government’s Push to Islamic Banking

In April 2022, the Shariah Court handed out a historic verdict that declared the prevailing interest-based banking system as against the principles of Shariah, directing the government to facilitate all loans under an interest-free system. The court further instructed the government to enact and amend laws to implement Islamic banking within the country and issued directives that the banking system of the country should be free of interest by December 2027.

This decision came after years of petitions against Riba (interest), with the Supreme Court referring the case back to the court in 2002 following appeals against the decision of the Federal Shariat Court (FSC).

In February 2023, Finance Minister Ishaq Dar reiterated the government’s commitment to implementing the Islamic financial system in Pakistan. He also revealed that a high-level three-member committee comprising key stakeholders such as the Ministry of Finance, SBP, Securities and Exchange Commission of Pakistan (SECP), and Shariah scholars, chaired by the Governor State Bank, has been formed to plan the financial system of Pakistan to operate on an Islamic basis. This committee would be directly monitored by him.

As part of its strategy to increase the share of Islamic banking from 20% to 35% in the next

Islamic banking has added considerably to financial inclusion. As the pie is getting bigger, this does not mean the share is being taken away from the conventional banking system, it is actually adding new deposits to the industry

Mr. Irfan Siddiqui, President & CEO, Meezan Bank Limited

two years, the State Bank of Pakistan (SBP) has announced that it will facilitate banks that have plans to convert their business into a Shariah-compliant mode.

Conversion to Islamic banking

In addition to the judiciary’s ruling, banks recognize the potential of Islamic banking in offering lucrative returns through its low cost of deposits and the significant potential for market share enhancement due to pent-up demand. Therefore, many banks have jumped on the bandwagon of converting themselves into Islamic Banks.

In early 2023, Faysal Bank successfully completed its transition to a full-fledged Islamic bank after being issued an Islamic Banking License by the SBP. This license has elevated Faysal Bank to become the second-largest fullfledged Islamic bank in Pakistan after Meezan Bank. The bank began its journey of transition back in 2015. At the time it already had the second largest Islamic banking window in the country with 53 standalone branches.

In line with this trend, Summit Bank’s board of directors has also approved a plan to convert the bank’s operations from conventional to a full-fledged Islamic bank. It also changed its name to Bank Makramah to accentuate its identity as an Islamic bank. Other banks that followed similar suit include Zarai Taraqiati Bank Limited while many other banks have also contemplated transitioning into Islamic banks. Undoubtedly, the verdict from the Federal Shariah court has profound implications for the banking landscape. If the interest-based banking system is to be fully abolished and replaced with a fully shariah-compliant banking industry by 2027, conventional banks don’t have much time. As mentioned earlier, it took Faysal bank eight years to complete its transition.

Besides, conversion to Islamic banking comes with its own challenges. Sharing his insights on the matter, Hussain said “Transition to Islamic banking must be planned meticulously. Every aspect, be it systems, products, processes, HR, or business feasibility, needs careful evaluation from an implementation perspective. The customer is imperative to the process whose sentiments must be in focus at all times. One of the

biggest challenges is mindset conversion. We had to transform people through conversion-oriented capacity augmentation. Mindset and culture transformation that we were able to achieve was the most significant.”

Most banks in Pakistan already have an Islamic banking window, so they have some experience with relevant products, services and technology. However, the intensity of complications with conversion would depend on the scale of Islamic banking windows. For banks having a larger window, the conversion would be smoother and vice versa.

Converting to Islamic banking requires the introduction of new policies, processes, and products, aligned with Shariah principles and relevant regulatory requirements. This metamorphosis necessitates substantial investments and unwavering efforts. It might also involve talent augmentation through a combination of induction and upskilling measures to support operational readiness.

Navigating portfolio conversions adds a layer of intricacy, necessitating meticulous accounting adjustments and bearing consequential financial repercussions. It may entail complications arising from customer consent requirements, risk of churn in different products/ schemes, level of readiness to contain this and strong governance on the conversion process, targets, and achievements. Portfolio exits through divestment or other options may also have to be explored where no product alternates are available or where commercial feasibility is challenged.

Way forward

Pakistan’s Islamic banking landscape has risen as a vibrant and dynamic force, sculpted by the tenets of Shariah and propelled by unwavering religious convictions. This financial framework surpasses being a mere substitute; it mirrors a profound convergence of individual ethics and economic decisions. With the conducive environment orchestrated by the State Bank of Pakistan and recent governmental impetus towards a comprehensive Islamic financial system, this industry is on a trajectory of expansion. n

Transition to Islamic banking must be planned meticulously. Every aspect, be it systems, products, processes, HR, or business feasibility, needs careful evaluation from an implementation perspective

Mr. Yousaf Hussain, President & CEO, Faysal Bank Limited