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CONTENTS

09 The PSX is badly regulated. The sale of Regent Plaza is one blatant example 14 Yes, the rich are getting richer. But could that also explain our inflation problem? Fahd Ali

16 16 What’s next for Pakistan’s oldest startup veteran? 20 Welcome home…or not 22 Whether you pick fight or flight, both choices come at a cost

27 24 A bid from Prax, and interest from Aramco; what’s going on with Shell?

Profit

28 Could access to Apple Pay and G-Pay solve the payment woes of Pakistani freelancers?

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) | Sohail Abbas (Lhe) | Malik Israr (Isb) Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk

THE PSX IS BADLY REGULATED. THE SALE OF REGENT PLAZA IS ONE BLATANT EXAMPLE PSX

Pakistan Hotel Developers Limited has its own definition of price-sensitive information. Is it an honest mistake or a convenient one?

By Zain Naeem

t started pretty much as a nonevent. On the 20th of September the Pakistan Stock Exchange (PSX), as part of its mundane routine, asked Pakistan Hotels Developers Limited (PHDL) what was going on with their stock price. The question was asked since PHDL, a publicly listed company that owns the Regent Plaza Hotel in Karachi, had seen a surprising surge in its share price since the 6th of September. The price had more than doubled from Rs 83 on the 6th of September to Rs 177 on the 20th of September. Any time there is a rise of this nature without any apparent reason, the PSX is supposed to ask the company if they know what is going on, and if there is any price-sensitive information that they have failed to release to the public. Companies almost always say that they have no clue why their share price is increasing, and usually that is the end of that. Price-sensitive information is any information that, if disclosed, would most likely have an impact on the company’s share price. For example, in the case of the PHDL, if their crown jewel, the Regent Plaza, was to go up for sale, the company would need to disclose this immediately, through a notification on the stock exchange. There is wisdom to this. If, for example, company A comes in and wants to buy company B and pump money into it one would expect company B’s stock price to go up. Now, this is information relevant to investors and as such company B must disclose it publicly via a notice to the stock exchange. This is because if they do not disclose it, the individuals that are in the loop regarding the deal will be able to buy shares in company B beforehand. When the information is finally disclosed the share price will most likely go up, and these individuals would benefit, but at the expense of those shareholders who sold their shares at lower prices being unaware of this price-sensitive information. This, of course, is what is called illegal insider trading. And that is exactly why the PSX followed procedures and inquired about the rise

in share price from PHDL. The suspicion was that there might be some positive development that had led to an unusual increased interest in the shares of the company by some insiders. But, as expected, on the morning of 22nd of September the company replied with an official sounding “idk”. However, despite the company stating that it had no price sensitive information to disclose, the share price continued its upward

trajectory, going up by another 7.5% that day, the maximum allowed increase in a single day. Perhaps this was because, the company in the very same response also mentioned, in a very by-the-way manner, that there were parties that would off and on approach the company for buying their crown jewel, the Regent Plaza. However, it stated that no firm offer, that was also acceptable to the company, had been made so far, which is why they had not made any

disclosures. This was the first time the company had, albeit casually, informed the PSX that it was open to selling the Regent Plaza Hotel. Let that sink in. Any price-sensitive information is supposed to be intimated to the stock exchange. PHDL never told the exchange they had plans to sell, and yet through this notification informed them that they had at the very least received parties that were interested in buying the hotel. And it did not end there. The very next working day, on Monday the 25th of September, PHDL announced that the Sindh Institute of Urology and Transplantation (SIUT) had approached them over the weekend with an offer to buy the Regent Plaza, and that the potential buyer was interested in conducting a due-diligence of the property. Even more incredible? The notification claimed that SIUT had approached them a mere one day after PHDL claimed they had never been approached by a serious buyer up until that point. Following the official announcement that SIUT was indeed making an offer, for the next three weeks, the share price continued to increase by the maximum allowed 7.5%, every single day. When markets closed on Friday the 13th this month, the share price stood at a whopping Rs 523.1. This would mean that if someone would have started accumulating shares in PHDL between the 6th of September and the 25th of September, when the material information was publicly disclosed, they would have made a profit of over 500% in a month’s time. And from the increased buying activity that took place during this period, one thing becomes clear: Someone had to be doing exactly that. A coincidence? Highly unlikely. The more plausible answer is insider trading. As highlighted above, this occurs when any person that had prior knowledge of the deal starts buying shares at a time when the information is not available to the public. To understand if this was in fact a case of illegal insider trading, one must first answer a few questions: 1. Why would a company’s share price go up if it is about to sell its main asset, which is akin to closing down the main business of the company? Should the share price not go down instead? 2. What exactly does the law say about disclosing price-sensitive information? Is there any confusion in law and amongst market participants about what constitutes price-sensitive information and at what time it has to be disclosed? 3. If such a case appears where there is such a discrepancy, what tools do the regulators have to establish if this was a case of

insider trading or not? And if it was, what could have been the modus operandi to execute and hide the crime? And can the regulators find proof and narrow down who the suspects are? Busting white-collar crime is a tough gig. In Pakistan it seems the authorities have had a particularly hard time of it. In the case of Regent Plaza’s sale to SIUT, let us start at the very beginning.

A bit about PHDL

et’s take a step back for a second. PHDL is a listed company that owns the Regent Plaza Hotel located on Shahrah-e-Faisal, Karachi. For years it has been in the hotel business and hasn’t been doing particularly well. It made profits in some years but nothing compared to the assets on their balance sheet. This is because PHDL has one very big and very fixed asset. The Regent Plaza Hotel accounts for a total of 97.7% of all assets that the company owns. In all companies, real estate is an asset that is regularly evaluated to reflect the real value of the asset in the financial statements. For example, the fixed assets (basically The Regent Plaza Hotel) were worth Rs 2.4 billion in 2010 and in 2023 stand at close to Rs 10 billion due to it being revalued at market prices. Based on this increase in assets, the book value of PHDL’s share should have gone from Rs 125 per share in 2010 to Rs. 542 per share in 2023. The only problem is that since these assets are rising because of increasing property value, investors are not particularly interested. The value of the property is rising, but that does not mean profits are rising. Just look at the past few years. In the year 2020-21, the company recorded losses worth Rs 4.64 crore. In 2022-23 they made a profit of Rs 5.88 crores. While they did make a profit last year, remember this is a company with assets worth tens of billions of rupees. So even if PHDL made a profit of Rs 5 crore every year it would be a meagre utilisation of the value of the assets they own. Investors are only interested in how well a company is doing, not the big fancy toys they own. Unless, of course, they are planning on selling those toys. If you are an investor in a company like PHDL, then shutting shop and selling the business is good news because you will make money. This is especially good if the company over the years had not been making any significant money off their assets. And since PHDL never expressed any interest in selling its properties, the value of the share remained low and steady. The share price has been trading between Rs. 20 and Rs. 160 from 2010 till August of 2023. The share price has been range bound between these two numbers and, regardless of performance, the share

price has never broken past the Rs.160 mark. That is until now. As we’ve mentioned above, the price was Rs. 83.5 when the market closed on 5th September 2023. Since then, the share price has rocketed to above Rs 500 after hitting upper lock on a nearly daily basis. This was strange. The company did not disclose any intention to sell, they did not announce that they were looking for buyers, or that anyone was interested in buying it. The stock price had remained steady for more than 13 years. And then in a matter of weeks it had ballooned. The only reasonable explanation for this can be that the company was planning on selling its real estate. The problem is that there had been absolutely no indication as to such a sale. And since this is considered ‘price-sensitive information’ which is relevant to investors the PSX ended up asking PHDL. They in turn said they knew nothing about what was going on, with the caveat that they had on occasion been approached by potential buyers. After the reply was sent to PSX, the company sent out an announcement to PSX on 25th September 2023 that a potential buyer namely Sindh Institute of Urology and Transplantation (SIUT) Trust had approached the company through a letter dated September 23, 2023 and had shown interest in buying the hotel from the company. On 27th September, PHDL held its board of directors meeting and decided to provide hotel property documents to SIUT Trust to carry out their due diligence. On October 11th, the company disseminated the information that an offer for the property had been received and that an amount of Rs. 14.5 billion was being offered. The impact of such an offer is going to be massive. As we have already seen, the hotel was valued at around Rs 10 billion by the company. Based on the Rs 10 billion number, the book value per share came to Rs. 542 per share. With an offer being made of Rs. 14.5 billion by the purchaser, the book value will further increase by 45% bringing the book value per share to around Rs. 786. As the book value of the shares would increase, the market value of the shares should settle around that point as well, assuming the sale goes through. The share price reaching Rs. 786 would mean that there is a further upside potential of the price to increase by approx Rs. 300 or another 55-60%. If the initial price of Rs. 83 is taken, the total price increase would be 9.46 times or 946%.

Where was the regulator?

hese are the moments that stock exchanges live for. There is nothing that should make a stock exchange suspicious like unusual activity. The

PSX

PSX has a rule that in case there is any material information that has not been disclosed by the company, they should do so to explain, from their view, the sudden increase in price of the shares. The safeguards are in place specifically to prevent insider trading. The law is pretty clear on these matters. Any and all information that is price-sensitive needs to be disclosed. That means if a company like the PHDL gets even a whiff of a sales offer, they need to disclose it immediately. Remember, when it comes to insider trading everyone is at risk. The insider could be an employee of either SIUT or PHDL that had knowledge about the deal being negotiated, it could have been a lawyer writing out the contracts, it could have been members on either one of the companies’ boards, it could have been a secretary that was booking the conference room in which the two sides were meeting. That is why it is so important to disclose this information. If it is anyone high ranking from PHDL or SIUT involved then it is a clear case of malicious intent to withhold information. In the case that it is some distant party using the information to make profits, PHDL sat and watched as the share price skyrocketed very quietly. They only responded when asked and even then made the very suspicious move of disclosing an offer to sell a day after denying any such offer existed. The PSX makes a particular point of this. In fact, in July 2023 the stock exchange issued Guidance Notes to listed companies on continuous disclosure obligations under the PSX Regulations. The document was 18 pages of bullet points that can very easily be boiled down to one sentence: When in doubt, give more information than you think necessary. In short, to cover their tracks and be compliant, companies need to be proactive in giving out information. So was this a case of insider trading and what can be done about it? “An increase in share price does not automatically imply that there has been insider trading or other market manipulation, however, the sharp increase in share price immediately before the announcement of a takeover bid raises red flags that need to be further investigated,” says Haroon Baryalay, Managing Partner at FGE Ebrahim Hosain. “Whether any insider trading has occurred or other market manipulation took place is something that will need to be determined based on the facts, which can only be decided after an investigation has been carried out.” There must have been a moment where the company’s board made a decision that they intended to sell their hotel. This decision must have gone through a process of making the decision within the company before the intent was broadcasted outside. The question that

Investors are only interested in how well a company is doing, not the big fancy toys they own. Unless, of course, they are planning on selling those toys. If you are an investor in a company like PHDL, then shutting shop and selling the business is good news because you will make money. This is especially good if the company over the years had not been making any significant money off their assets. needs to be asked of PHDL are around this. The question is, will the PSX confront them on this now? And what tools do they have at their disposal? “Please be informed that the PSX has already taken cognizance of the unusual price movement in the share of PHDL. Any adverse findings as a result of the assessment shall be dealt with in accordance with the relevant provisions of the applicable laws. Rest assured, PSX is fully cognizant of its duty to ensure fair dealings and always takes measures to enhance transparency in the interest of investing public and market at large,” a representative of the stock exchange said in response to Profit’s query.

So what can be done?

he PSX actually has a number of options at its disposal. The stock exchange is just the frontline regulator of these matters. That means they are the ones that pick up on unusual activity and make inquiries into it. If they find that the answers from a company are not satisfactory, they have the option to go to the Securities and Exchange Commission of Pakistan (SECP) which is the apex regulator of all matters that have to deal with financial crimes. The SECP is actually empowered to deal with these situations. All listed companies do provide details of the people they employ, board members are all known, and a lot can be done. The SECP initially makes inquiries. The commission has an “ACCESS TO INSIDE INFORMATION REGULATIONS, 2016” which requires each listed company to appoint a senior manager to maintain a register with names of persons that have access to insider information. It should be possible to determine if the persons listed as insiders therein have been involved in any transactions in the weeks prior to the announcement of the acquisition. If so, this would be evidence of insider trading. If an investigation is launched, they can approach the Federal Investigation Agency (FIA) to take charge. The FIA then can swoop in with some commando action. This means

raids, seizing phones, pulling company records and doing a thorough forensic investigation into the matter. This is ideally how white collar crime should be dealt with. A complete audit needs to consider the accounts that were buying and selling the shares around these dates and see who the beneficial owners of these accounts are. It is important to carry out such an audit as it will show if the deal or even the knowledge of informal talks was leaked out beforehand. As the information was credible, people acted on it and made quick money once the deal would be made public. The PSX will do itself a favour by getting to the bottom of these trades and see if shareholders of the market were disadvantaged in any way. During these dates, two Negotiated Deal Market (NDM) trades were also carried out with Arif Habib Limited (TREC Holder Code 050) where 20,000 shares and 25,000 shares were bought outside of the regular market. Just based on current market price, these two trades made Rs. 13 million on just two trades as well. All these trades are suspect as they were carried out before the deal was announced formally. The only problem is that Pakistan has generally had a hard time busting white collar crimes. Most crimes come out when it is too late. The SECP is empowered to investigate insider trading and were once actually quite active in issuing press releases when they busted someone. The problem is that the last time such a press release came out was way back in 2017. In fact back then two high profile cases had come out where high ranking officials of UBL and The Bank of Punjab had been caught being involved in insider trading. In the case of UBL, it had actually been their head of Investments. The past six years have not seen any such action being taken, and there is a general understanding that insider trading can be undertaken relatively safely because the regulators have been a bit lax. But the very stark and obvious actions of PHDL make it seem like another press release from the SECP may be on the cards. n

PSX

OPINION

Fahd Ali ALL THINGS ECONOMICS

Yes, the rich are getting richer. But could that also explain our inflation problem? The conspicuous consumption led inflation in Pakistan

recent conversation over what’s driving inflation got me thinking that Pakistan’s inflationary spiral is partly due to elite consumption and that there is a link between elite consumption and the government’s deficit spending through income distribution. The usual diagnosis that too much money circulating in the economy is repeated ad nauseam. This could be the case but it doesn’t really explain much - not to me at least. I like to look at the details so I thought I should look at the data and see what it throws up! My first inclination was to look at the consumption expenditure and currency in circulation in the economy. So I pulled out the data from the State Bank of Pakistan’s (SBP, Pakistan’s central bank) Handbook of Statistics on Pakistan’s Economy and Economic Surveys of Pakistan to look up the number for the past two decades. I specifically looked at nominal data i.e. numbers not adjusted for inflation or changes in price levels. The next thing to do was to scale it down

The author is an economist whose work focuses on macroeconomics and economic history with political economy as a common theme to both

by the nominal GDP number to get some perspective. The consumption expenditure in the economy is divided into two categories; household final consumption expenditure (HFCE) and general government final consumption expenditure (GGFCE). HFCE records all the consumption expenditure made by households on final goods and services and GGFCE records the same for the government. Scaling them down by the nominal GDP gives us figure 1 below. I also thought it would be interesting to see these expenditures side by side with currency-in-circulation (CIC). So I scale down CIC by GDP as well and include it in my graph. CIC is the money issued by the central bank minus what’s been removed by it from an economy. Think of CIC as the water left on the bath floor after taking a shower. You can mop it off but some is always left behind. How much you can clean depends on how good your mop is and how good you are at cleaning the floor! CIC is the same. When the economy (banks more specifically) demands money in the economy the central banks issues it to the banks. As the money is used up for transactions through cheques and cash, it starts to move into the system. It can stay there as cash or bank deposits. When the central bank wants to remove the money from the economy it mops up liquidity from the banking system and induce cash holders to deposit money in the banks. How well can the CB do its job depends on how well banked an economy is i.e. how much its citizens rely on the formal banking channels to carry out their transactions. Let’s return to figure 1 now.

Figure 1: Households and Government's consumption expenditures as GDP shares with currency in circulation. Figure 1 shows Household consumption share on the left vertical axis and government consumption and CIC shares on the left vertical axis. First up, we can see that GGFCE and CIC do not exhibit

one relationship. They seem to move in opposite directions for the first ten years in our data (FY03 to FY13) after which they move in the same direction. This could be because of the dollar inflow in the first decade of the War on Terror (WoT). These inflows financed government spending and it didn’t need to borrow as much from the SBP to finance its expenditures. HFCE increases steadily from 73% to 85% in the two decades shown here. This is interesting and significant. The past two decades also mark a shift in the government’s strategy to spur growth in the country. The Shaukat Aziz-led finance ministry (and later the government) in the early 2000s relied on creating a consumption-led growth boom by maintaining low interest and exchange rates financed by foreign inflows. Ever since, successive governments have tried similar strategies to cause short term growth in the economy without really thinking about its negative consequences. For example, each one of this consumption led boom has followed a bust because once the foreign inflows (mostly aid and loans) dry up, the country runs into a balance

of payment crisis i.e. it runs short of dollars to pay for its imports and service its debt. A balance of payment crisis quickly transforms into an inflationary crisis that makes the government run to the IMF. We saw this story from 2008 to 2013 and then more recently since Fall of 2021. An important part of this story is to understand the income distribution in the economy. People with higher incomes consume more. Pakistan National Human Development Report 2020 calculates that Top 20% share in total national income is at 49.6% while the bottom 60% own 29.7% of the national income. Naturally consumption in the country is concentrated at the top. Burki et. al. shows that the top 10% captured 24% of the total income growth in Pakistan from 2001-02 to 2015-16 as opposed to bottom 50% that captured 32.4% in the same time period. This means that as the economy grows the rich keep getting richer while the poor continue to struggle. When the government spends money in the economy to spur growth, that money changes into income for firm owners and workers. As we have seen that the rich own most of

the income and benefit disproportionately from economic growth, we can safely assume that most of government expenditure is captured by the rich as income. The rich then go on and spend this new income on things that they like to consume - again safe to assume that these consist of luxury imported goods. I would like to argue that the rich also have a high demand for money because of their desire to park their wealth in the real estate sector. We know this sector is largely undocumented i.e. the transactions documented here do not necessarily get recorded. Further, no taxes are paid either on the transactions or the profits earned by the seller and/or the broker. Both these factors - rich capturing a disproportionate income share and their consumption - can be inflationary if they remain unregulated. Taxing the rich is one way out. But more importantly we need to think seriously about distributing income in the economy in a more equitable manner. We also need to ensure that growth in income is also equitably distributed. How do we do that will remain a million dollar question for some time to come! n

COMMENT

What’s next for Pakistan’s oldest startup veteran?

The startup ecosystem has had a rollercoaster ride. Does one of its oldest occupants have another trick up his sleeve? 16

By Abdullah Niazi

hat does the average startup founder look like in Pakistan? Young, motivated, preferably educated in the United States, disruptive (a word used to death across the globe by now), and committed to the cause of solving problems. Monis Rahman fits this description perfectly. The only difference between him and the many young men and women that are making their mark in the startup ecosystem is that he has been doing this for much longer. In fact Monis’ first entry to Pakistan as a startup founder was more than two decades ago in 2003. In this time Monis has launched multiple successful and unsuccessful startups. He made his mark with the online employment portal called Rozee, which was the first Pakistani startup to receive VC funding. And now, at the age of 53, he is set to embark on his next venture. Dukan, Monis’ latest foray, was born out of the Covid crisis and is a digital commerce, payments, and lending ecosystem geared towards the country’s five million micro, small, and medium enterprises (MSMEs). The aim is to connect these businesses and provide them with supply chain solutions. Now, after going through layoffs and the funding slowdown of last year, Dukan is going in a different direction. To hear Monis speak of it, this new venture might be something that has possibly never been done before in the world and never before in Pakistan. In partnership with easypaisa, Dukan is powering a one-stop solution for Pakistan’s micro, small, and medium enterprises (MSMEs). The platform, which is being launched under the name as easypaisa Karobar is a fully integrated end to end solution for end stage retailers as well as the supply chain. It offers both in-app online payment facilities and more importantly the option to borrow money through easypaisa. How will Dukan fare with this new project? What needs to be understood is that Pakistan’s startup ecosystem is very different from what it was a few years ago. Funding is not as easy to come by as it was in previous years. On top of this, a lot of founders have had to learn the lesson that good business fundamentals are as important as disruption and innovation. For those familiar with how startups work, the failure rate is very high. Globally, around 90% of startups are bound to fail. Around 10% of these fail within the first year and a further 70% fail between years two through five. The ones that survive global catastrophes and funding crunches are the ones that make it to the other side of the tunnel.

But these are all things Monis Rahman knew both before and during the startup boom in Pakistan. He was, after all, a part of the startup culture of Silicon Valley in the late 90s. And that is also where our story begins.

The Silicon Valley spirit

onis Rahman graduated from Stanford University in 1996 with a degree in Computer Engineering. In a way, he really didn’t have a choice. Because back in the late 90s and even to this day, Stanford University is a feeding ground for Silicon Valley. In many ways if you are a Stanford grad, you don’t choose the startup life, it chooses you. Up until 1997, Rahman was working for Intel as part of their microprocessing design team. He spent two years there before getting his first taste of being a founder with eDaycare. com, a platform that provided online video streaming and related applications to over 3,000 daycare centres in the United States. At the time in Silicon Valley, this was peanuts. The United States was going through its funding and startup boom. In many ways it was an eerily similar situation to what we saw in Pakistan between 2018 and 2021. “There are so many analogies I can draw with the 1999 VC coup in the United States. I could write a book just based on this very phenomenon”, Monis tells Profit. At his offices in Gulberg Lahore, Monis very much cuts the figure of the startup founder. At 53 he does not look his age. Energetic and a smooth talker, there is a slight Californian tilt in his accent that speaks to his years in the United States. “This was an era where tech was the place to invest. Much like we saw in Pakistan, everyone was worried about missing out on the opportunity and was investing left, right, and centre grabbing at any opportunity they got,” he explains. During this time Monis learned, he grew, and he imbibed in himself the spirit of Silicon Valley. In 2003 it was time for a big shift. His parents had just retired and were planning on moving back to Pakistan. He decided to move with them. But the Pakistan Monis arrived back in was very different from the one we see today. The country was vastly behind the rest of the world when it came to tech. The internet was a fairly new contraption in people’s households and mobile bandwidth data was a long way away. The banking industry had just been reformed under the Musharraf regime and Pakistan was still in the early stages of privatising its financial system. The economy however, was thriving. The military regime had shaken hands with the United States in the post 9/11 world and Pakistan was a key ally in the war on terror. With

the aid dollars flowing in, reserves were swelling and urban Pakistan was partying. Interest rates were low, unemployment was even lower, and this was the time that was squarely in the boom category before the bust arrived. Which is why when Monis said he would bring the same Silicon Valley ethos to Pakistan he was labelled a madman. “This is not the US, people would say to me”, he tells us with a chuckle. “They said I was crazy to come back to Pakistan and would be back in the United States in a month”. Indeed Pakistan had very little regulatory framework at the time to suggest a startup culture could be fostered. Yet Monis was determined, and that is where his twenty year journey begins.

Willing to fail

he first project was Naseeb.com. For any person that was a young adult in the early 2000s, this was a Muslim centric social media platform similar to Facebook. “Naseeb emerged because I knew engineering was cheap in Pakistan and we could leverage a similar boom in Pakistan as was seen in the US.” While it started off as a regular social media website Naseeb eventually started to serve the purpose that all online forums eventually do — matchmaking. While the platform was geared towards Muslim communities in the United States and in the UK, Naseeb Networks, Inc., was registered both in Lahore, Pakistan, and in San Jose, California, US, to make it easier to raise money and investors. According to a Forbes article, Monis spent $60,000 as a startup cost for Naseeb and initially handled the company on his own. The website became a way to meet new people and families. “There are so many people I know and I’m sure you know as well who met through Naseeb. Eventually we started charging a premium and initially people were willing to pay. The problem was that this was the same time as other social media platforms like Facebook were becoming popular. These guys were not charging money and were angling to go towards a business model where there would be ad based revenue. The Muslim market was unfortunately not big enough for us to try this gamble which is why Naseeb started to slow down.” It was at this time as well, however, when Monis would almost stumble into the venture that is perhaps his most defining. You see, between 2002 and 2005 Naseeb had grown significantly. While it had started off as an operation he began from his home, Monis eventually needed employees. And remember, this was the era where internet accessibility was just starting off, so people either got jobs by dropping physical CVs or responding to classified ads in the newspapers. This was expensive

COVER STORY

and difficult. As a tech founder, Monis thought he would create an online portal to help him hire for Naseeb. The response to the initial website he developed was overwhelming. Other than helping him in his hiring needs, other companies also started approaching him to post their job ads on his platform. This is where it struck Monis that this was where money was to be made. By 2007 the newly minted website called “Rozee” was pulling bigger numbers in traffic than Naseeb. The company became the first Pakistani startup to receive VC funding. It currently boasts more than 65,000 employers that use the platform to find new talent.

An undercooked market

he success of Rozee cannot be attributed to the fact that it was a startup at a time when the concept of startups was far from conception in Pakistan. If anything, it can be said that Rozee succeeded despite this. “We started to make money. We were charging for our services and this was really the first time that online shopping was taking place in Pakistan. We built the software ourselves and all the big banks asked us for it as well. It was fun solving these problems”, Monis explains. But there were other more systemic problems in the ecosystem. To collect payment, Rozee’s sales teams often had to go and collect cheques, often of low denomination, themselves. There was no such thing as online payments at the time. And this is where Monis saw his next opportunity — financial technology. The State Bank of Pakistan had launched its first introduced regulatory framework for branchless banking in 2008, and the same was subsequently revised in 2011 based on the market developments and international best practices. The Branchless Banking Regulations of SBP are an effort towards achieving the objectives of an increasing access to basic banking services and an inclusive financial system that best serves all segments of the society. Monis was already interested in fixing this payment problem. He had faced it firsthand during his time at Rozee with his team having to go door to door to collect the payment. On top of this he also had a number of friends that had been part of the initial teams over at PayPal. Which is why when his friend Roshane Zafar asked him to join the board of the Kash Microfinance Bank he jumped at the opportunity. Ms Zafar was a friend of Monis’ and created the first specialised microfinance organisation in Pakistan, the Kashf Foundation, in 1996 which has served over 5 million women entrepreneurs across Pakistan. Kashf was truly a pioneering effort in microfinance in Pakistan and had the added ben-

In this case Dukan’s model was to build the software for distributors, merchants, and FMCGs to talk to each other. We give an app to the dukandar with a wallet embedded inside it. Distributor stock is in there too. They have a separate app for warehouses etc. All of these transactions are happening online and paid digitally too in some cases Monis Rahman, Co-Founder and CEO Dukan efit of targeting a user base that is still vastly underrepresented in Pakistani financial spaces and was much worse off in the 1990s. Over at the bank Monis sat on the board and was a trusted advisor. For three years he served in this capacity until November 2013 when Kashf was acquired by FINCA — a global microfinance network. FINCA came in bearing a large equity investment of more than Rs 820 million. And this is also where the idea for Finja sprang from. After working with FINCA for a while, Monis along with the company helped to launch Finja which was meant to be a new mobile wallet. Finja would be the Super Agent of FINCA under the branchless banking framework approved by the State Bank of Pakistan. Essentially Monis was interested in providing banking solutions to SMEs through Finja. In this case, Finja would create and provide the software to FINCA which would then use their banking licence to provide credit ratings and banking solutions. It was through this that SimSim would also be born. Launched in 2017, this was Pakistan’s first free mobile wallet. This was the first time a bank and a fintech company, acting as the super-agent of the bank, partnered to create a digital financial product. There was much hype around SimSim when it was first launched. They completed the first ever retail QR code in Pakistan. In a display of showmanship, Monis made a deal with a Biryani seller outside Hafeez Centre where the offices of Rozee and SimSim were located. They paid the biryani vendor for the day and sold a plate each for Rs 100 — all people had to do was download the SimSim app and make the QR payments through this. The resulting video from this gimmick garnered a lot of attention for SimSim. But this would also be a project that would face many hurdles. While SimSim was the first Pakistani company to introduce a mobile wallet, they were given fierce competition by JazzCash and Easypaisa. These companies had a massive existing user base and leveraged

that to bring users on board. On top of this, there was the problem that mobile wallets as a business have very high acquisition costs and very low churn. “We raised a million dollars and weren’t going to burn through a quarter of that on acquisition costs and marketing. We learned about loans, lending, etc and we pioneered supply chain loans instead. We created that model but then Covid hit.”

Dancing with the young ones

y 2020 Monis Rahman had seen mostly everything. He had seen firsthand the startup boom in Silicon Valley in 1999 and was initially the lone startup warrior in Pakistan. He created a number of successful and unsuccessful startups, most notably Rozee and SimSim. In the twenty years where all of this was happening, changes were underway in Pakistan’s startup ecosystem. Airlift, Bazaar, Sadapay, Nayapay, Jugnu, Dastagir, and many others raised major rounds and there was a lot of buzz around startups. During this time it seemed there was no stopping startup funding. Covid was also a major moment where startups had a chance to make an impact. It was in this boom and time of lockdown that Monis identified another area where startup disruption could work — the country’s Micro, Small, and Medium enterprises (MSMEs). “I started to work with the stores in the market near my house. Started sitting in Kiryana stores to try and understand and thought what if we go online for these guys and it is quite complicated. That is how the Dukaan app was born. The goal was to digitise commerce for everyone,” he explains. MSMEs really are a vastly ignored segment in Pakistan. Most people in Pakistan have unregistered and small businesses. In fact, 80% of Pakistan’s non-agricultural labour is employed by SMEs. On top of this, the problem is that banks do not lend to these organisations because of bureaucratic barriers to entry.

The Dukan chapter

he concept behind Dukan was that it would give anyone with a smartphone the ability to build their own webstore. The startup had seemingly been on an impressive growth trajectory. According to a press release published on August 3, 2021, the startup announced having onboarded 100,000 small businesses in Pakistan that built their e-commerce stores using Dukan.pk mobile app, only five months after starting operations. In October, Dukan.pk claimed that the web stores had reached the 200,000 mark, doubling in two months. But then came the funding crunch. Pakistan’s startup ecosystem poster-child Airlift announced shutting down its operations completely as VC funding started drying up, not only in Pakistan, but also globally. Earlier, Airlift announced laying off 31% of its workforce in a bid to increase its runway amid fundraising woes. Startups like Bykea, Truck It In, Retailo, and Tajir also discretely laid off employees as capital becomes scarce and startups are forced to adopt austerity measures to become sustainable. It was in the middle of this that Dukan laid off about 25 percent of its workforce as startups across the globe adopt austerity measures due to a drying up of VC funding. “When there is an abundance of capital you don’t think it will ever dry up. But all startups go through this. There are always waves of lay-offs and it is how dedicated you remain to your thesis that counts.” Many startups did not survive during 2021. Airlift was the first to go and then others fell in quick succession. But Dukan, through measures such as lay-offs and being stingy with funding, has managed to survive up until now. The plan had always been to find a sustainable business model. Their latest ploy is easypaisa Karobar.

The easypaisa Karobar gambit

he announcement came last week, with a press release announcing that easypaisa, Pakistan’s leading digital financial services platform has launched easypaisa Karobar powered by Dukan to address the unmet banking needs of two million retail merchants across the country. Being Pakistan’s first digital banking app for retailers, easypaisa Karobar enables merchants to manage their financing needs digitally, reduce operational complexities, and become part of the digital economy. It should be remembered that easypaisa has recently been successful in acquiring a hotly contested competition for a digital banking

licence. The objective from the SBP for giving these licences was simple: Pakistan has a huge unbanked population with access to finance statistics nothing short of being terrible. The central bank has been edging towards increasing the financial inclusion numbers and it has been gunning to do so by moving its focus on digital financial services. Which is why easypaisa is now launching the easypaisa Karobar application. To understand this in simpler terms, Dukan has essentially entered into a partnership with easypaisa. One option Dukan had was that they could sell their software. There has been a lot of talk about how MSMEs in Pakistan can be better utilised. As an employer, MSMEs account for the largest component of the labour force outside of the agricultural market. The problem is that these businesses operate in an old school fashion. Small retailers rarely have access to financial institutions and find it hard to find capital since banks do not lend to them. The concept here is that MSMEs will have an integrated application where they can order supplies, make payments, and also borrow money based on credit ratings provided by Dukan. But instead of selling the software, Dukan has entered a partnership with easypaisa. While the easypaisa Karobar application will be controlled on the PlayStore by easypaisa, it will be hosted entirely by Dukan. Both of the organisations have put in place controls to grow the partnership together. But the plan is for Dukan to continue selling such software to other companies in partnerships and taking a cut off the earnings. “In this case Dukan’s model was to build the software for distributors, merchants, and FMCGs to talk to each other. We give an app to the dukandar with a wallet embedded inside it. Distributor stock is in there too. They have a separate app for warehouses etc. All of these transactions are happening online and paid digitally too in some cases,” explains Monis. “We give this real time data for scoring to whoever we have as a partner, in this case easypaisa. They get real time data and in exchange give real time loans. Payments can be made and collected as well. This is ecommerce integrated with banking. Easypaisa has white labelled the Dukan platform and that will be called the easypaisa Karobar app. That is the reason the SBP gave all these licences because they wanted them to lend to SMEs.” The company claims that easypaisa Karobar would streamline merchant operations with advanced features, enabling cashless payments from the easypaisa Wallet to distributors. The company claims that merchants can also order stock online from distributors and digitise their workflows. “As a fintech company providing digital

banking and e-commerce infrastructure to connect retailers, distributors, and manufacturers with embedded financial services, we are delighted to partner with easypaisa. This first-ofits-kind partnership acts as a strong alignment of vision between Dukan and easypaisa to bring prosperity to small offline businesses through digitization at scale,” says Monis.

What is Monis’ plan?

t the age of 53 he is significantly older than most startup founders. Most startup founders that emerged from the post-2018 boom are now in their early 30s – which is the age Monis first came back to Pakistan in. But somehow Monis manages to fit in very well. Very responsive to phone calls from the press, when this correspondent called him for an interview the phone went unanswered. He called back within five minutes and requested a little time to call back. “I’m in between sets at the gym. Let me finish and call you right back,” he said. “I haven’t gotten fit to fit an image,” he tells us. While this may be true it definitely helps him look the part in the youth dominated world of startups. “There was a time when I gained a lot of weight sitting behind a desk but I have always been athletic and this is simply a part of that,” he says with a chuckle. As things stand he along with other startup founders are trying their best to make gains at a difficult time. The dizzying highs seen by tech-startups all over the world have been brought down to abysmal lows by the brutal claws of a market that is persistently bearish in the face of rising inflation and a global recession. Major tech players including Apple, Microsoft, Amazon, and Google have taken significant stock hits, shaking investor confidence and almost overnight making funding for startups scarcer than it has been in years. There are two ways to deal with this. The first is to cut costs and try to get by on the funding that they already have in the bank until the global recession ends and VCs are ready to back them again. This we are already seeing in the massive layoffs and downsizing. The key, however, will be finding internal cash sources. Startups that can cut costs and find streams of revenue to break even or be slightly profitable will be able to stave off the inevitable longer as well as impress VCs – which might be interested in investing looking at their grit. That is the ethos that Monis wants to imbibe in his projects. “If we raise a million dollars we are not going to burn it all on acquisition costs,” he explains. The key here is and always has been integrating the startup spirit with good business fundamentals. It will be the startups that manage to set up good business models that will survive the storm and thrive when the tide turns. n

COVER STORY

Welcome home…or not Pakistan faces a housing deficit of over 10 million units. Is the state paying attention?

By Meerub Amir

s there a housing crisis in Pakistan? If you ask Dr Nadeem ul Haque, the former deputy chairman of the Planning Commission of Pakistan, there is no crisis - no, really. In comments to Profit, Dr Haque believed that because he personally had never seen any homeless people in the streets of Pakistan at night that meant there was no housing backlog or deficit. What Dr Haque believes as an individual is entirely his prerogative, but the fact that he previously headed the planning commission of our country is concerning. Because this kind of attitude prevalent in our government - that housing is not a crisis that Pakistan has to pay attention to - is exactly what has led to delays in the country’s housing policies. Consider: the federal government promises to provide housing under Article 38 of the constitution, and yet the government published its first housing policy decades later, in 2001. The truth is, for a country with the highest rate of urbanization in South Asia, that was recently hit with devastating flooding that destroyed over two million homes, the housing crisis is most definitely a problem. Is the state paying attention, and does it have the resources to provide solutions?

Capturing the crisis

o understand Pakistan’s housing crisis one must keep in mind three variables: scale, demand, and cost. First, the scale of the problem: In 2020, the State Bank of Pakistan published a report estimating Pakistan’s total housing deficit to be 10.3 million units. According to the report, Pakistan’s urban housing shortage was 3.4 million housing units, while rural housing shortage was over 7 million housing units. The data on the country’s total population as well as urban population growth rate strongly suggests that these numbers may have exponentially increased in the last three years. With Pakistan’s population size estimated to increase to 250 million by 2025 and for the urban population to entail 50% of the total population by 2040, the demand for housing is expected to increase from 1.07 million housing units per year in 2020 to 1.24 million housing

units per year in 2025. Second, who is behind the demand? In 2018, the census calculated that around 62% of the demand for urban housing was associated with lower-income groups. This is pertinent, because it removes the idea “People should just build their houses” from the conversation, and makes a specific case for government intervention. Average households in Pakistan’s poorest population quintiles each earned an average monthly income of Rs 24,365 and Rs 30,210 in 2018-2019. Even without accounting for the increase in minimum wage or the average price of building material, it would be fair to assume that the cost of building even a low-cost five marla greenfield home is higher than the average propensity to save for lower-income groups in Pakistan. Third, what is the economic support required to overcome the crisis? In their working paper for the International Institute for Environment and Development, Arif Hasan and Hamza Arif calculated that in order to restrict the housing deficit to current rates, Rs 100 billion is required to be dedicated annually over the next decade towards low-cost housing units. At a mere Rs. 2.33 billion, the 2020 budget allocation for housing, however, was Rs 97.6 billion less than this required amount. What widens this gap more is rising inflation and declining income per capita, further lessening the probability that the deficit can be conquered by just creating new low-income housing units.

Who’s in charge?

t is not enough to delineate the country’s housing crisis. The issue is that there is no central authority that is in charge of handling the issue. Consider the case of a developed economy, like the United States of America. It has exactly one department, the U.S. Department of Housing and Urban Development (HUD), which designates affordable housing to people and provides housing loans. That is not the case in a developing country like Pakistan. Housing in Pakistan is a severely decentralized domain with departments set up at a federal, provincial, and even municipal level. The Planning Commission of Pakistan, for instance, is a financial and public policy development institution of the

Government of Pakistan which falls under the jurisdiction of the Ministry of Planning, Development and Reforms. The Planning Commission carries out research studies as well as state policy development initiatives for the growth of the national economy and public and state infrastructure. The Planning Commission also publishes the Public Sector Development Programme (PSDP), a document revealing the federal budget for each ministry related to development, including the Ministry of Housing and Works (MHW). The Ministry of Housing and Works is therefore responsible for implementing the policies framed by the State related to the “Housing Sector”, as is expressed on their website. The MHW is further divided into six departments, namely the Pakistan Housing Authority Foundation (PHA-Foundation), the Federal Government Employees Housing Authority (FGEHA), the Pakistan Public Works Department (PWD) and so on. Out of the six, only PHA-Foundation is “consistently striving to eliminate shelterlessness and to reduce the housing shortfall in Pakistan”, as is stated on their website. However, this is not the end of government departments dedicated to resolving the housing crisis. The Punjab Housing and Town Planning Agency (PHATA) was created to mitigate shelter-less low income groups in Punjab as well as to rejuvenate the province’s housing sector. PHATA is a subdivision of The Housing and Urban Development (HUD) and Public Health Engineering (PHE) Department. In Sindh, the Human Settlement Authority works towards providing low cost and affordable housing as does the Sindh Cooperative Housing Authority. If you are having trouble keeping track, please note we have not even mentioned the Provincial Housing Authority in KyberPakhtunkhwa, the Special Development Board for Low Cost Housing and the Communication, Works, Physical Planning & Housing Department in Balochistan, or even local development authorities like the Government of Punjab’s Lahore Development Authority. What this cobweb depicts is that while the responsibility of housing is explicitly with the state, the overlapping jurisdictions make it impossible to highlight one specific depart-

ment as the accountable governing body. This further leads to scattered mandates and therefore the inability to reach any policy goals at a national level.

Regularisation

he state has two avenues at its disposal: regularizing informal settlements and increasing the state budget towards low-income housing. Let’s tackle the first one. There is a common misconception which equates a housing crisis with a crisis of complete homelessness. The UN-Habitat report of 2018 revealed that around 50% of Pakistan’s urban population lives in informal settlements or katchi abadis. This is perhaps why many people, including Dr. Haque, do not see any “homeless people” sleeping in the streets of their cities. However, this does not mean that a large proportion of this 50% do not require adequate housing. The state of Pakistan’s katchi abadis are predominantly unsanitary, unsafe, and extremely overcrowded. To say Pakistan is facing a housing backlog does not mean that people have absolutely no form of shelter, but rather urges for an improvement of substandard shelter that is inadequate to their right to living a dignified life. Seeing the sheer impact that informal settlements have on curbing urban homelessness and providing an alternative to low-income housing, the provincial governments have each over the years introduced the Katchi Abadi Acts which protect these settlements from arbitrary eviction, but also move them towards regularization. For instance, Sindh passed the Katchi Abadsi Act in 1987, Punjab in 1992, and Khyber Pakhtunkwha in 1996. To be regularized by the state is not only a form of legitimacy but also improves access to other amenities and services, such as gas and electricity. Yet, there is still a long way to go as a 2022 UN Habitat report revealed only 562 informal settlements in Karachi are regularized, while 424 remain unregularised and without any security of tenure. In a 2020 UNICEF report, it was estimated that 36% of all Katchi Abadis are still unregistered and therefore illegal. It is pertinent to note here that these figures do not always go unnoticed by state institutions. In 2015, for instance, owing to the growing predicament of homelessness, the Supreme Court sought proposals for ensuring provision of shelter to the homeless people in the federal capital.

The PSDP budget

nother more institutionalized avenue at the state’s disposal is through the Public Sector Development Programme (PSDP). The

PSDP is essentially the federal budget for development published by the Planning Commission which reveals the resource allocation for each development scheme and division for that year. It is a relevant read precisely because it explains what amount of money the government plans on spending on various ministries, such as the climate change division, human rights division, and the housing & works division. This year’s PSDP was released in early June when the National Economic Council (NEC) approved Pakistan’s highest Federal Public Sector Development Programme (PSDP) of Rs. 1150 billion for fiscal year 2023-2024. Separate from this allocation, the NEC also approved a Rs. 200 billion allocation to Private Participation in Infrastructure Projects and Built-Operate-Transfer project investments which are projects that involve a public-private partnership and are output focused. This is the extent of information provided in the PSDP document. Little to no clarifications on how this money will be used or where it will be specifically directed towards is available. Moreover, when Profit interviewed five different officials, each at different levels of seniority at the Planning Commission and Housing & Works department, they all redirected us towards the website, stating that as government officials they were unable to provide any insights to the media outside their official media portal. Unfortunately, similar to the fate of many other government projects, upon closer inspection, the PSDP is quick to lose its glimmer. And if this close inspection is directed specifically towards the provision of funds for Housing & Works, the inadequacies become even more apparent. Let’s break this down. One of the main reasons why the government allocated funds of Rs. 40,600 million to the Housing & Works division in the PSDP can not solve the problem is because contrary to popular belief, the department is not set up to solely provide low income housing or any housing at all to regular citizens. In actuality, as stated before, the Housing & Works division is further divided into six departments, only one of which, the PHA-Foundation, provides low cost housing units to low and middle income groups of Pakistan on ownership basis. This means two things: first, the 40,600 million Rupee budget to the Housing & Works division is not synonymous to the amount allocated in the provision of low income housing or shelter to Pakistanis, and second, since the PHA-Foundation provides housing on an ownership basis, this means that the PSDP funds only reach certain economic groups in the country.

Speculative low income housing

ere’s an unexpected twist in the country’s housing crisis: the speculative real estate market. In an interview with Profit, a former officer at the Board of Revenue turned urban planner highlighted the increasing trend of treating residential plots and land as speculative investments. This refers to the widespread practice of purchasing land with the intention of selling it once its value increases over a long period of time, as a means of wealth development. This is true and observable across all socio-economic groups, where higher income groups purchase more expensive and large areas of land, whereas lower income groups will purchase five marla plots and not carry out any construction for many years. According to the urban planner, even many recipients of low income housing schemes, prefer to either turn their housing units into income streams by finding tenants or to wait for the value of their land to increase in order to sell it off later for a high profit. In all these cases, no new houses are built and people continue to live in their original conditions, which solves no problems. On the contrary, the solidification of this disinterest in building houses as a social practice has proved to be distortionary for Pakistan’s rent and financial markets. Resultantly, the urban planner said, “State programs that provide housing require a broad oversight mechanism that should tackle two things: firstly, ensure that each eligible family or household only receives one housing unit and secondly, that these housing units or plots are not thrown into the speculative market.” But before getting to housing mechanism, the state has to first provide houses to begin. Indeed, the state’s role in providing houses involves multiple variables, both formal and informal. It has become integral now for the state to recognize that they must coordinate and regulate both in their national housing policies. This would require an accelerated approach to regularizing Katchi Abadis under the provincial katchi abadi acts, alongside the provision of constructed low income houses to the income groups most susceptible to experiencing homelessness or debilitating living conditions. Additionally, as alluded to before, greater regulation of the housing market must be provided to ensure that residential land is used for its designated purpose, which is to house the owners and not to be used as a tool for wealth generation. n

REAL ESTATE

Whether you pick fight or flight, both choices come at a cost A large number of Pakistanis trying to flee, find themselves in a black market for Visas

Ghulam Abbas and Shahnawaz Ali

and the unchecked proliferation of the ‘black market,’ which offers expedited appointments in exchange for substantial sums of money.

he utopia of a foreign land, makes a majority of Pakistanis believe that fleeing the country would solve all of their problems, be it students aspiring for a higher education or seasoned professionals looking to get paid their worth. However, these Pakistanis find themselves quite humbled, even before they leave Pakistan once they start going through the visa process. In an era dominated by modern technology, where international travel should be just a few clicks away, Pakistani citizens find themselves ensnared in a precarious situation when attempting to secure appointments for foreign visas. And yes, a part of it is due to the worth of the Pakistani passport. But a bigger part is due to the sheer volume of people trying to leave. As have been reminded time and again, the higher the demand, the higher the price. This predicament has given rise to an alarming phenomenon - the growing influence of a ‘black market’ in visa scheduling. Interviews with Pakistani citizens, who are aspirants to have a foreign visa, have unveiled a deep-seated concern regarding the extensive delays in securing foreign visa appointments

What is the Problem?

or a vast majority, going outside Pakistan is a dream. And when they get the opportunity, they pounce on it. In the last 2 years, Pakistan’s economic conditions have worsened significantly, causing an increased sense of urgency amongst the youth to leave. The data is indicative of this reality. The number of people who left Pakistan in 2022, was 3 times more than the number of people in 2021. Around 80% of the people moving abroad are unskilled or semi skilled labourers struggling to make ends meet at home. According to the Ministry’s report for 2022, out of the 832,339 emigrants, only 1902 were highly qualified and 2777 were highly skilled. In contrast to this, overwhelmingly 24445 were unskilled. That is one problem, albeit not a big one. The other problem is the skilled, trying to “upscale” or leave. The recent dollar-rupee parity makes it more attractive than ever to go outside and send back a fraction of their pay in remittances. But how to get out? The easiest way out seems to be as a student for those who can afford it. An investment that is likely to pay back in forex terms is an urban household’s best bet.

Come the admissions season, many students find themselves at the doorsteps of visa consultants. And at that office there is a long queue even after securing an admission. Especially for countries that have easy access and lower cost universities. A low-tier UK university or a public German university remains the most lucrative option for stepping into the developed world without paying a high premium or without securing a scholarship.

Germany

he problem is at a higher magnitude for the students wanting to go to Germany. Reportedly, a rising number of Pakistani students who were admitted to German universities are now grappling with the distressing challenge of prolonged delays in obtaining student visas from German missions within Pakistan. Such a delay not only risks jeopardising their academic admissions but also casts a looming shadow over their future prospects. For students attempting to secure a visa appointment at the German Embassy in Islamabad these days, the bitter reality is the shockingly extended waiting times, often exceeding an astonishing twelve months. Despite persistent inquiries to the embassy, no satisfactory explanations have been provided for these delays, further intensifying the frustration and

anxiety among students. Speculation points to the absence of stringent criteria for booking visa appointments as a significant factor behind these protracted waiting times. Presently, anyone with a valid passport can apply for an appointment, even without possessing a formal offer letter from a German university. This lax approach has resulted in appointment slots being occupied by individuals who have not yet applied for university admissions, creating a backlog that undermines deserving candidates. But what do these people who have occupied these slots do with them? They sell.

website,” he recalled, “they scheduled an appointment for me a year later.” In a bid to expedite the process, he turned to an agent who secured an appointment for him three months later, in exchange for a fee of 70,000 rupees. A similar account was shared by a student who went to London to pursue higher studies. “I was told to wait more than 40 days for an appointment. To get an earlier appointment to submit my documents and to make sure that they reached the embassy on time, we had to pay Rs 35,000 to an employee of the visa facilitator’s office in Pakistan. I immediately got an appointment for 5 days after.”

Education Disrupted, Dreams Shattered

n the case of the UK, the process is different. Most students don’t need to go through an interview. However, they do need an appointment with the facilitators. The government of the UK has made it simpler for students to submit completed documents through these facilitators. However, in peak season, internationally affiliated facilitators also have a shortage of appointment slots. Students with late admission decisions find themselves in a fix when they need quick visas. In come the employees of the said agents and companies, with an easier fix. Pay higher amounts, sometimes under the table and get a fast tracked visa within days.

The Role of Agents in Providing Early Visa Appointments

urprisingly, both local and international media outlets have reported the existence of agents who claim to process visas within a significantly shorter timeframe, typically 15 days, albeit at a substantial cost. This glaring disparity in processing times has raised valid questions about the embassies’ efficiency and transparency. Khalil Khan, hailing from Karrak, shared his personal experience with the ‘black market’ when applying for a visa to Germany. “When I applied for a visa through the German embassy

he existence of such an opportunity is always cashed unless there’s repercussions. But what is at play here is the counterfactual. Not getting a visa often means a loss of time, money and dreams for these people. What is being cashed is not the system, but the vulnerability of the people. Arsalan Khan, a resident of Lahore, shared his academic setbacks caused by a late visa appointment from the German embassy. “I applied for a scholarship in Germany for postgraduate studies but wasted two valuable years of my academic career,” he lamented. Majida, from Quetta, applied for a German visa to pursue her Ph.D. “Initially, they scheduled a two-month duration for my interview, but it took years to be conducted,” she explained. Financial constraints prevented her from seeking assistance from agents offering early appointments for a fee of 80,000 rupees. In some cases these late appointments have not only disrupted business and education but have also had a profound impact on family relationships. Noor Khan, a German citizen originally from Pakistan, reluctantly divorced his wife, Sania Rehman, due to a visa appointment scheduled three years later. Talha Jalil, currently residing in Germany, faced similar circumstances as his visa appointment for his wife and son was delayed by two years. The familial pressure became unbearable, leading to his wife seeking a divorce.

Embassy Negligence or Insufficiency to meet demand?

ost countries work with a model of supply and demand. Their foreign offices are staffed only as much as needed. The alarming growth of the ‘black market’ for visa appointments and the increasing number of complaints about late appointments have raised pressing questions that demand the attention of these embassies. Why do appointments secured through the ‘black market’, for example in Germany’s case, not appear on the embassy websites? How are visa applicants affected by these prolonged delays? Why does the embassy take such an extended time to schedule visa appointments for foreigners if they allow this practice? Remarkably, despite mounting concerns and inquiries, the German Embassy in Islamabad has chosen not to respond to queries shared by this scribe via email, even after being formally requested to do so within a week. These delays, with visa interview appointments sometimes scheduled over 24 months after application submission, are gravely impacting the educational prospects of Pakistani students. The embassy has yet to address the role of agents in visa appointments. Afterall, the right to go outside your homeland to seek education should rest with everybody. It could be due to a dream of settling abroad or it could be a child’s dream to come back and serve their country. Such backlogs not only demand embassy attention but also government intervention. Ideally, we need to create job opportunities for graduates from local universities such as LUMS, NUST, GIK, FAST etc. While these students have undergraduate degrees, they’re unable to find jobs that match their academic credentials and skill-sets, to stop the infamous “brain drain”. But while we cannot do that, the least we can do is not hinder their progress in their search for employment or higher education. n

TRAVEL

Could access to Apple Pay and G-Pay solve the payment woes of Pakistani freelancers? Sadapay is introducing payments made through the platforms for freelancers on its Sadabiz platform 24

By Saneela Jawad

reelancers in Pakistan will now have the opportunity to receive international payments through Apple Pay and Google Pay. The major development in the tech field came after the financial technology startup Sadapay announced that its platform would be integrated with international payment platforms for business users. The move by Sadapay addresses a longstanding void faced in particular by Pakistani gig workers who work for foreign clients through platforms such as Fivver and

Upwork. However, it should be noted that the introduction of Apple Pay and Google Pay through Sadapay is an initial first step and not an overall launch of the platforms in Pakistan.

How it works

nternationally, Apple Pay and G-Pay are mobile payment services introduced by Apple and Google that work on the respective operating systems of these phones. This means if you have an iPhone, a Mac, an Apple Watch, or any other Apple product you can use Apple Pay to make payments in person, in iOS apps, and on the web. Similarly, G-Pay caters to people with

android devices. Now, both Apple Pay and G-Pay work with the ethos of digitising both cash and debit cards. These platforms can be used to make retail purchases as well as online payments in an easy and seamless way. In Pakistan, however, both of the platforms will only be enabled for online transactions through Sadapay. So what is the point? Well, this marks a major development for gig workers in the country.

The freelancer equation

he freelancing market in Pakistan is bigger than we realise. With low pays particularly in the software field, a number of young professionals have slowly drifted away from 9-5 jobs and have started working as self-employed individuals. Many of these professionals use platforms such as Upwork and Fivver and work for foreign clients. These clients find cheaper labour in markets like Pakistan and pay in foreign currency which is a win-win equation for both sides. Freelancers in Pakistan earned around $400 million in both 2021 and in 2022. This accounts for about 15% of Pakistan’s total $2.6 billion ICT (information-communication-technology) exports. An Oxford Internet Institute (OII) report ranks Pakistan 4th in the global digital gig marketplace, with about 8% of the total freelance work in 2017. Pakistan stands at 4th position due to a rising number of qualified graduates who are working by freelancing their expertise. The biggest problem for these freelancers is the inability to receive payments. Pakistani banks make receiving foreign exchange payments a pain and the most available option of PayPal does not work in Pakistan. Apple Pay and G-Pay, however, are great alternatives with 500 million and 150 million global users respectively. This means that a lot of foreign employers are able to use these platforms to make payments. With Apple Pay being four times larger than PayPal, this means freelancers in Pakistan can potentially connect with 650 million clients worldwide. For this purpose, Sadapay has set up Sadabiz. This is essentially Sadapay for businesses rather than for the everyday user. Through this platform freelancers can set up business accounts on Sadapay and enable themselves to receive payments through Apple Pay and G-Pay. Essentially, freelancers will be able to create a link requesting an Apple Pay payment and send it to their clients. The client can then simply click on the payment link, enter their information,

and complete the transaction in a matter of seconds. In the past year alone Apple Pay achieved a remarkable $6 trillion in payment volume, with a user base of 550 million, surpassing PayPal, which recorded $1.4 trillion in payments from 450 million users. Notably, PayPal saw an 8% decrease, whereas Apple Pay demonstrated an impressive 52% yearover-year growth. The potential for Apple Pay’s continued expansion is substantial, as there are roughly two billion iPhones globally equipped to utilise this service. Considering the prolonged discussions about bringing PayPal to Pakistan without fruition, the integration of Apple Pay emerges as a significant development. It now enables freelancers to seamlessly accept payments from a vast clientele base, totalling 700 million people worldwide, through the connection to both Apple Pay and Google Pay.

Is Sadapay targeting the freelance market?

his development is big for freelancers. It means that any foreign client with an iPhone anywhere in the world can easily and quickly pay freelancers in Pakistan, eliminating the need for clients to go through traditional payment platforms. This also seems to be a prudent business decision on the part of Sadapay, which is targeting a very lucrative niche market through this new option. The Sadapay Business accounts will also have a higher account limit than regular Sadapay accounts which have a monthly receivable cap of Rs 4 lakhs. The announcement was made by SadaPay’s Founder and CEO Brandon Timinsky last week during the SadaSummit held at COLABS Lahore. The event focused on the art of mastering freelance in Pakistan, a concept that has grown widely in the last few years. “By using SadaPay and bypassing traditional freelancing platforms, freelancers can save a significant amount of money on platform fees, which can often range from 10% to 30%,” said the Sadapay CEO. The move seems to be a dedicated effort towards promoting freelance culture in Pakistan with Sadapay wanting to become the payments solution for this growing customer base. That is perhaps why they have also launched SadaSchool, an online platform that offers a masterclass for freelancers to step up their portfolio with SadaSchool. During the SadaSummit, SadaSchool CEO, Waqas Hassan talked about the vision behind this program and stated that it “envi-

sions the establishment of a robust ecosystem tailored for freelancers within Pakistan”. Drawing inspiration from Singapore’s transformative shift to an entrepreneurial economy in 2011, SadaSchool is determined to foster a vibrant community of freelancers in the region. With the ever-increasing prevalence of remote work, the presentation underscored the pivotal role freelancers play in Pakistan’s economy, making their growth and support a priority. Brandon talked about SadaSchool and stated that it will allow the user to take these Masterclasses on the free platform. On a Discord community it allows the user to go from a beginner to an expert as a freelancer from peer support and mentorship. Tasks are assigned and the user is able to upload the progress on Discord. With this, there is a resolute commitment to not just nurturing freelancers but also expanding the SadaSchool ecosystem into a comprehensive framework that significantly contributes to Pakistan’s economic growth.

What will the impact be?

his is clearly good news for freelancers, and the initial response also indicates something similar. The question is, however, just how much of an impact will this have? For starters, most freelancers use platforms to find jobs. These are places such as fivver and Upwork. On these platforms, a person can link their bank account and the platform ensures that clients pay up in a timely manner. The amount is deducted from the client in dollars and directly transferred into the bank accounts of the freelancers in rupees. The banks give them the money at the interbank exchange rate, something that can be particularly painful for the freelancers. The other problem is that when payments from foreign clients come in, the banks usually hold them for a few days after they are made. So if your client pays you on Monday, it is likely that your bank might process and release that payment to you by Wednesday or Thursday for example. In the few days in between, the bank sits on the foreign exchange and earns interest off it. The delay is in a way an additional transaction cost. It will be imperative to the success of this product how quickly Sadapay can process these transactions and what rate they offer for foreign currency exchange. Currently a lot of the transactions take place through Payoneer on these freelancing platforms. There is also the added challenge that Apple Pay is used more by individuals rather than by businesses. n

TECH

Mega Conglomerate buys Hotel Metropole In 2017, Habibullah Khan of Mega Conglomerate bought Hotel Metropole, a near-abandoned hotel complex spread over 4 acres right in the middle of the financial district of Karachi from Zoroastrian, more commonly known as Parsis. According to estimates, the deal cost Habibullah Khan close to Rs 12 billion. Back in 2017 however this transaction’s value in dollar terms was a whopping $110 million.

Habib Bank buys state of the art building and renames it HBL Tower Back in 2017, Habib Bank Ltd, paid Rs 14.4 billion for the new HBL Tower in Clifton Karachi. They bought this from Mega and Forbes, the shipping conglomerate owned by the reclusive billionaire Habibullah Khan. Back in 2017 however this transaction’s value in dollar terms was a whopping $137 million.

Bank Al Habib buys Centrepoint from TPL: In 2021 Bank Al Habib bought Centrepoint from TPL Properties for nearly Rs 7.75 billion. Back in 2021 however this transaction’s value in dollar terms was a decent $46 million.

Hashoo Group (Pakistan Services Limited) sells PC Peshawar to Serena Hotels In 2022 Serena Hotels bought PC Peshawar for Rs 3.2 billion. In dollar terms the deal was valued at $13 million.

SIUT to buy Regent Plaza Hotel from Pakistan Hotel Developers Limited Valued at Rs 14.5 billion, if the transaction goes through, it will be the single largest real estate transaction in the country’s history in absolute rupee terms. However, In dollar terms the transaction is worth around $52 million.

INFOGRAPHIC

A bid from Prax, and interest from Aramco;

what’s going on with Shell?

Shell looks to be sold to a foreign buyer and, for all intents and purposes, it should

By Daniyal Ahmad

hell Pakistan has become a coveted prize. It has been wrested from the grasp of local investors, and foreign interest seems to be surging. The company heralded the dawn of the week starting on October 16 with the news that a global oil behemoth has expressed interest in making a bid for the company. The revelation came on the back of a weekend full of whispers that the world’s largest oil company is also eyeing Shell Pakistan. How are Shell Pakistan and Shell International reacting to all this? “On 14 June 2023, Shell Pakistan Limited (SPL) informed that the board had been notified by Shell Petroleum Company Limited (SPCo) of its intention to sell its 77.42% shareholding in SPL,” stated the company. “SPL has been informed by SPCo that SPCo is conducting a targeted sales process which will entail further due diligence and negotiations with potential buyers, and at this stage is witnessing robust interest from both international and domestic parties. As SPL is a listed company, during the course of the sale process, some potential buyers may issue a statement of public announcement of their intention to acquire SPCo’s shares in SPL pursuant to Pakistan securities and listing rules,” they added. “Any sale by SPCo of its shares in SPL remains contingent on the execution of binding documentation and the subsequent receipt of regulatory approvals, and further announcements will be made by SPCo and SPL at those

times,” they concluded. So, what’s up?

Who is Prax, and why would they want Shell?

eadquartered in London, Prax is a British multinational, independent global energy conglomerate dealing in crude oil, petroleum products and bio-fuels, with a complete integration across the oil value chain, from upstream to downstream. At the core of Prax Group’s operations are exploration & production, refining, logistics, and integrated supply & optimisation. The Group’s assets and investments are strategically designed to complement and enhance these activities. The Group employs a robust workforce of 1,450 individuals, spread across 8 offices worldwide. The Group’s downstream

marketing and distribution businesses bear the Harvest Energy brand. Meanwhile, its midstream and upstream businesses, encompassing refining, blending and exploration and production, carry the Prax brand. Collectively identified as the Prax Group, it encompasses a total of 66 companies within the corporate structure and 3 subsidiaries. The company has a global footprint with operations spanning across the United Kingdom, Belgium, the United States of America, Singapore, Kazakhstan, Switzerland, China, the Netherlands, Nigeria, and Albania. The company, led by its transaction advisor AKD Securities, has set its sights on acquiring an impressive 77.42% – equivalent to 165.7 million shares – through an agreement. This ambitious move could potentially result in a total acquisition of 88.71%. In executing this strategy, they will not only have bought out SPCo’s share (the 77.42%) in SPLn but will also have bought out additional shareholders

Shell’s need for a foreign buyer

S (the 11.29%) to consolidate their position. As of this writing, SPL’s market capitalisation stands at a substantial Rs 34 billion or $127 million. This acquisition strategy is not only ambitious but also makes perfect business sense. Despite grappling with high prices and rampant inflation, Pakistan’s demand for refined petroleum products is projected to increase at a compounded annualised growth rate of 3%, reaching 682,970 barrels per day (bpd) by 2032. This trend provides Prax with

SPL’s market share in the OMC segment has unfortunately plummeted from 10% in fiscal year 2015 to 6% in fiscal year 2022. However, with over 600 filling stations scattered across the country, there is still potential for growth. Most importantly, however, the majority of demand for petroleum products in Pakistan is set to be met with imported petroleum products. Imports are set to rise in a similar vein to general consumption. What does this mean? Prax can acquire the imported petroleum prod-

a sustained demand for their product for at least a decade. Moreover, as an oil marketing company (OMC), SPL provides Prax with a significant footprint in the Pakistani market.

ucts from their own global subsidiaries to meet their Pakistani OMCs needs. More importantly, the deal works for Shell.

PCo announced its parent company’s intention to divest from the Pakistani market in June of this year. This publication has already provided an extensive analysis of the reasons behind the company’s decision to sever ties with Pakistan. Read more: Shell is exiting Pakistan. What does it mean and what could the transaction look like? However, the decision to exit the Pakistani market boiled down to two identifiable reasons: Pakistan-specific risks to which the company was exposed, and its plans for global restructuring across various different markets. One of the key topics of discussion that has risen since the announcement is how SPCol would actually extract its funds from Pakistan. The company is a multinational, and therefore all money that it would want from the transaction would have to be given to it in the form of US Dollars, or perhaps Pound Sterling or the Euro. All of which Pakistan is short of, and whose flow out of the country we have actively tried to stem over the past year in various different ways. “The major impediment to the company’s exit would be finding a way to arrange the dollars that would have to be paid to Shell abroad,” explains Mustafa Pasha, Chief Investment Officer at Lakson Investments. “If it was a domestic buyer, then the regulator would probably say that, fine, if you want to execute this transaction, then do you have the ability to arrange dollars from abroad so that Shell can be paid off and the net outflow from Pakistan is negligible,” Pasha adds This is exactly what Pakistan Refinery (PRL) did earlier this year when it made a bid to buy out SPCo. Amongst its various different plans to make the payment, it also entertained the idea of settling the transaction entirely abroad. This was also perhaps the main reason why it partnered with a mobile manufacturing and distribution company with offices outside of Pakistan. Read more: Pakistan Refinery Limited, and Airlink make joint play for Shell In any capacity, PRL would have had to finance a dollar-based transaction with Pakistani Rupees and therefore add pressure to the country’s already precarious foreign currency reserves. However, SPCo seemingly wants nothing to do with the Pakistani regulator altogether. Confidential sources intimately acquainted with the situation have revealed to Profit that SPCo has, in fact, dismissed the joint venture of PRL and Airlink. The rejection was primarily due to dissatisfaction with the proposed financing mechanism. Moreover, when viewed in conjunction with the notes

INDUSTRY

from Attock Petroleum’s recent corporate briefing, it becomes clear that Shell is seeking a foreign buyer. Although Attock did mention that SPCo appeared to have already chosen a buyer, Profit has been informed of additional bids on the horizon — particularly from overseas. The only plausible explanation for this scenario is that SPCo is resolute in its decision to secure a foreign buyer for SPL. This apparent preference for a foreign buyer not only bolsters the likelihood of Prax’s bid being accepted but also substantiates the whispers about Saudi Aramco’s interest in SPL. The question arises — why would Aramco be interested in SPL? The answer lies in the fact that such an acquisition could potentially resolve numerous challenges for the Kingdom that operates this state-owned oil behemoth.

An outlet for the Saudi refinery

he Petroleum Refining Policy, formally known as the Pakistan Oil Refining Policy for New/Greenfield Refineries 2023, was unveiled earlier this summer. This policy has been tailored specifically for a single project – a greenfield deep conversion integrated refinery and petrochemical complex with a crude oil processing capacity of 300,000 bpd. This project is being established in collaboration with Saudi Arabia to the tune of $10 billion. The policy does not permit any future refinery projects that utilise a different oil refining process or technology other than deep conversion, or have a capacity less than 300,000-bpd. Moreover, it stipulates that it must be an integrated refinery and petrochemical complex, regardless of feasibility. Refinery projects with a capacity of less than 300,000bpd will be considered under a separate package offering lesser incentives and concessions. With a theoretical refining capacity of 400,000 bpd, Pakistan is woefully inadequate to meet its petroleum needs. Consequently, it imports a staggering 70% of its motor gasoline (petrol) and 60-65% of its high speed diesel (diesel). The Saudi refinery, however, promises to be a game-changer. It will not only double Pakistan’s refining capacity – considering how our local refineries seldom reach the 400,000 bpd mark – but also offer a full conversion facility. Unlike our local refineries, which are hampered by the furnace oil production, the Saudi refinery will exclusively produce petrol, diesel, liquified petroleum gas, and petrochemicals. This means that once operational, the Saudi refinery will significantly augment the supply of petrol and diesel in the country. Furthermore, the aforementioned advantages of having an OMC in Pakistan over the next decade also apply to Aramco — and to a larger

extent too. Naturally, Aramco would prefer to have its own OMC to distribute its product rather than depend on other players. The reasons are obvious: better planning and higher margins. All refineries with an OMC arm leverage it to boost their core sales. These wings enable them to forecast better, minimise inventory losses, maximise inventory gains, and capture the total integrated margin a refinery could earn. This entails internalising the refinery margin, the OMC margin, and even the dealer margin if they directly own their pumps. This brings us to the elephant in the room. How would the Saudi government benefit from all this?

The kingdom on a buying spree, and the country that needs capital injections

et’s get one thing clear. If the company placing the bid is Aramco itself — not its trading subsidiary or any of its subcontractors — then this implies that the transaction has received sovereign approval. One might wonder, why would the Saudi government have an interest in acquiring Shell in Pakistan, of all places? “This transaction aligns with Saudi Arabia’s interests on several fronts,” articulates Haroon Sharif, the Former Chairman of the Board of Investment. “Primarily, they can reassure Pakistan of their support for its balance of payment needs, however modest they may be.” He further adds, “Secondly, they can implement their strategy of broadening their regional footprint.” Sharif continues to explain the strategic importance of this move. “Thirdly, and perhaps most significantly, they can exert greater diplomatic influence in the region by increasing their stakes here.” He concludes by saying, “Lastly, under the current recessionary conditions, they might secure a lucrative asset price.” In essence, the Saudis will have communicated to Pakistan that they are increasing their stake in the country and bolstering the Government’s coffers — albeit through the PSX, rather than physical assets. There are limited assets that can be evaluated and traded through the market. Therefore, Shell Pakistan, OGDCL, and other listed companies are easier to divest and purchase because a corporate governance mechanism is in place. It is a stock market transaction and financial advisors might find it more comfortable than working on pricing mechanisms for hard assets. Furthermore, it provides the Saudis with a more straightforward mechanism to liquidate their investment if necessary.

When it comes to listed companies, it might be more beneficial for the Pakistani government to have Shell act as a conduit for investment rather than sell off OGDCL in its current state. After all, they would still be receiving a financial injection and replacing one repatriation stream with another rather than creating an entirely new one. The real advantage for Pakistan in Shell being bought out by Armaco lies in the potential spillover effects that it might generate. “The fact that Aramco is a prospective bidder lends credibility to the view that the Saudis are keen on Pakistan and are looking to increase their stake here,” states Pasha. He further adds, “I think overall that’s a positive for Pakistan because the Saudis have been on a buying spree; they’re flush with liquidity and have their 2030 vision.” Pasha continues his analysis by saying, “If Pakistan even figures as part of that vision in a small way, it can result in significant dollar inflows over the next six months to a year.” This is crucial because we have pinned many of our hopes on the Saudis coming to Pakistan in a big way — whether it is in the form of deposits, foreign direct investment, refinery, Reqo Diq or corporate farming.

Why Pakistan needs a foreign buyer for Shell

irst, and foremost, settling the transaction abroad will not only save Pakistan from a foreign exchange outflow but might even bring a small chump of change in terms of foreign exchange too. Any time there’s a change of ownership in excess of 30%, it requires a tender or bidding process for minority shareholders where the acquirer has to bid for at least 50% of the outstanding float that is not being purchased from the majority buyer. SPCo owns 75%of SPL and it’s open to exit its entire stake, that means the float is around 2%. So whoever ultimately makes the acquisition they would at minimum have to bid for 50% of the minority float, right, which is 12.5% of SPL’s shares. Subsequently, the minority shareholders that might be frothing at the mouth with all these developments will also be the reason for an ever so slight foreign exchange injection into Pakistan. The other thing that having a foreign buyer, irrespective of who buys it in the end, is that there’s also the positive image building that it could potentially do for the country. “If a foreign player comes here, it’s indeed a reassuring factor that an international company has confidence in Pakistan’s market,” explains Sharif. This is particularly important when you’ve witnessed the exit of HSBC, Eli-Lily and are currently overseeing the exit of Lotte Chemical and Telenor. n

INDUSTRY