CONTENTS
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12 Most private hospitals are not equipped to treat Covid-19 patients, decimating their bottom lines 16 The great life insurance swindle
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22 As retail takes the Covid-19 blow, how are companies like So Kamal planning to cope? 28 Third World, pause. Time for an agenda reset Asif Saad
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30 Bank spreads take a hit even before the COVID-19 pandemic 32 How to capitalise on the pandemic and import cheaper gas 37 Let’s talk immorality and business Sirajuddin Aziz
WELCOME
A proactive central bank… up to a point The State Bank of Pakistan, it seems, does not want to leave anything to chance. Inflation numbers have started to tick downwards, but data on quarterly gross domestic product (GDP) are not out yet, but in a surprise move, the central bank has already slashed interest rates by another 200 basis points, taking the total cut since last year to 425 basis points. The benchmark interest rate is now back in the single digits at 9%, which is likely to be of some relief to many businesses, particularly those that rely on bank borrowing. But while we are grateful that the State Bank had the foresight to not wait for data to prove the all but certain need to cut interest rates, we are somewhat discouraged to learn as to just how much of the central bank’s functions are subject to the whims of the finance ministry, an institution that it is ostensibly supposed to be independent of. In particular, we find it discouraging that the finance ministry has a tendency to sideline any independent voices in economic policymaking at all. The only times the State Bank gets to make moves like this is when they are reducing interest rates. If they were to need to raise interest rates, and the International Monetary Fund (IMF) were not breathing down the finance ministry’s neck, one suspects that the speed and decisiveness with
which they acted under the current circumstances would somehow be lacking. In other words, the State Bank is free to act as it wants, so long as it does things that the finance ministry is comfortable with. If at any point it finds itself at odds with the finance ministry, it can forget about even the notion of independence, let alone actual decision-making capacity. This is a crying shame, because when it comes to policy analysis and resources, the State Bank is unmatched in Pakistan, effectively the best-funded economic policy think tank in the country. Why does the finance ministry not choose to rely on it? Because it would curb the ministry’s power to acknowledge any other institution as its equal. Until a minister is willing to acknowledge that it is in their best interest to have the civil servants competing for influence – and thus ceding more control to the elected minister – we will continue to see the Q Block Babus dominate all manner of economic policymaking in the country, this welcome decision notwithstanding.
Farooq Tirmizi Managing Editor
Executive Editor: Babar Nizami l Managing Editor: Farooq Tirmizi l Joint Editor: Yousaf Nizami Reporters: Syeda Masooma l Taimoor Hassan l Abdullah Niazi l Meiryum Ali l Hassan Naqvi l Shahab Omer Director Marketing: Zahid Ali l Regional Heads of Marketing: Muddasir Alam (Khi) Zulfiqar Butt (Lhr) l Mudassir Iqbal (Isl) l Layout: Rizwan Ahmad l Photographers: Zubair Mehfooz & Imran Gillani l Publishing Editor: Arif Nizami l Business, Economic & Financial news by 'Pakistan Today' Contact: profit@pakistantoday.com.pk
FROM THE MANAGING EDITOR
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Readers Say Under the current scenario, you cannot hope to predict how things will unfold. Nobody can predict that. It is all a matter of waiting and seeing how the cookie crumbles. It is easy to write things and they look well and good on paper. The problem in this country begins with implementation. As reporters and journalists, you are more aware of this than anybody else. Promises and how things should be are all a dime a dozen, the question is what can actually practically be pulled off. There has been consultation among the top leadership of the whole country, and none of the policies being crafted or actions being taken are happening in a vacuum. Everything is being done and they are aware of the responsibility that they bear and what could happen if there is any adverse reaction to it. Theories are easy to come up with and call out people for not following what seems to be good on paper. But there is a reason everyone calls this an unprecedented situation. No one can really know what they are doing or what should be done. Apropos: No PM, you’re wrong. We can afford a shutdown. Here’s how Ahmad Dogar, Website The approach that Pakistan has taken so far seems to be mirroring that of the United States. The goal seems to be minimizing the impact of a recession on the economy of the country rather than trying to halt the virus. It makes one wonder whether implementing conditions for transfers to incentivize better behavior, in this case staying at home, improves the effectiveness of lockdowns in our densely populated societies? Apropos: No PM, you’re wrong. We can afford a shutdown. Here’s how Saad, Twitter The approach that is currently being taken is the conventional approach followed by most “liberal” governments all over the world. Imran Khan’s construction package is an example of many such packages released all around the world in the wake of the crisis. Another (very interesting) possible approach for Pakistan is outlined in this article and is more than worth looking at. Apropos: No PM, you’re wrong. We can afford a shutdown. Here’s how Sallahudin Ahmad, Twitter
facebook.com/Profitpk twitter.com/Profitpk linkedin.com/showcase/13251020 profit.com.pk profit@pakistantoday.com
HOW TO CONTACT
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Never thought I'd see the opinions of capitalists and leftists coincide. Essentially, that is what it boils down too. And the ‘too long didn’t read’ for this article would be a simple one - we need Universal Basic Income for the 99%. Now. Apropos: No PM, you’re wrong. We can afford a shutdown. Here’s how Asad Pabani, Twitter
It’s absurd to challenge the PM without having access to expertise, statistics and resources as he does. He has appointed Zafar Mirza as his advisor, who has served as the Director of Healthcare System Development at the WHO Regional Office for the Eastern Mediterranean. The guy knows more than any of us. Apropos: No PM, you’re wrong. We can afford a shutdown. Here’s how Zain ul Abideen, Facebook It is healthy to have counter opinions, but there are certain conditions to these counter opinions. Sure, you can have differing or even outlandish opinions, but provided that they are researched, fact based points of view. There will never be a shortage of people saying “I told you so” after the fact. Apropos: No PM, you’re wrong. We can afford a shutdown. Here’s how Shakil Sadiq, Facebook This is a good review of the landscape as things stand. As an ancient SCSTrade user, I don't think as a retail investor I need any other platform. More importantly, are retail investors even willing to pay a fee for these services? Apropos:Can local financial data service providers compete with Bloomberg? Ammar Khan, Twitter Honest opinion if I had the money to invest in a country at this time I would invest in Pakistan. He is doing something that he will not come to regret in this lifetime. Trust me, his fortunes will change dramatically. Good luck to him. Apropos:What’s an American serial entrepreneur doing in Pakistan? Changing the way you bank, that’s what Abdul Wahid, Facebook Pakistan is a strange country, it celebrates getting loans! Somehow we are so happy at receiving the monet that we forget it has to be returned. And not just the amount we’re getting, but also the interest and strict conditions in addition to the principal loan. Historically, our ability to pay has only been made possible by increasing interest rates, which has always resulted in high inflation and devaluation of the rupee. When the IMF loans anything to Pakistan, it expects us to devalue the Rupee against the green. This in turn increases inflation. They say they have brought down the inflation or it helps bring down the inflation but the cost of doing business goes up because the main ingredient is raw material for the industry which is all imported! Petroleum, cooking oil, chemicals etc. Apropos: IMF approves $1.4bn in coronavirus aid to Pakistan Rashid Mehr, Facebook
COMMENTS
IN BRIEF The International Monetary Fund (IMF) has approved the disbursement of
$1.39 billion to Pakistan under the Rapid Financing Instrument (RFI) to address the economic impact of the COVID-19.
The collapse of the airline industry has not just affected travellers— the gold industry heavily relies on commercial air travel to transport metal to refineries, according to the World Gold Council.
“I am tired of repeating this. The pandemic has affected economies around the world, but nothing is more important than people’s lives. You can revive a lifeless economy but you cannot bring back the dead.” Chief Minister of Sindh Murad Ali Shah, on his priorities
As scary as Mao: China’s economy shrank by 6.8% in the first three months of 2020, due to the COVID-19 pandemic. The last time the economy shrunk that drastically was in the midst of the Cultural Revolution, in 1967.
Pakistan is among 76 developing countries which will receive debt relief, effective from May 1. To clarify, the loans still have to be paid—G20 nations have simply frozen repayments until the end of the year
Pakistan’s economic growth is projected to contract 1.5% this fiscal year, compared to the previous estimate of a 3% growth. This is the first time the country’s economic growth has contracted in 68 years.
Third time lucky: the State Bank of Pakistan slashed the policy rate yet again, this time by
200
basis points to 9%. This is the biggest reduction the SBP has taken in 18 years.
K-Electric Limited elected Riyadh S. A. A. Edrees as the company’s new chairman, effective from April 9, 2020. Edrees was previously a board member from November 2005 to May 2009, and rejoined the board in July 2019. Despite his first name, Edrees is a native of Kuwait.
Less than 1 in 10 rural Pakistanis could identify ‘crowded places’ as a risk for catching COVID-19, according to a new study by the Aga Khan University. And 74% thought COVID-19 was spread by mosquitoes. 11
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By Shahab Omar and Taimoor Hassan
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ou would assume that in the middle of a global pandemic, the one industry doing well would be healthcare. Yes, it is understood that doctors are at their wits end and healthcare systems are stretched thin, but this is the case in oversubscribed and underfunded public healthcare systems. What about the significant presence of private healthcare options and private hospitals? One would assume that the rich would want to be treated in style, and in comfort, and would be willing to cough up the cash for a luxury quarantine or more individualised attention at not-so-busy private hospitals. The reality, however, is different. Even as China staggers to recovery and Europe shows the first signs of hope in the battle against Covid-19 and the epicenter of the virus in the United States, New York, finally seems to be passing the worst, private hospitals in Pakistan are facing a crunch – and things have barely even started to get bad. The problem starts with the lack of preparedness that pervades even the private healthcare industry in Pakistan. As the coronavirus epidemic continues to spread throughout the world, healthcare workers have become heroes in many countries, putting their own lives on the line to help patients recover. There are gut-wrenching stories of doctors and nurses losing their lives to treat patients, and some of those stories exist in Pakistan too, at least in the public hospital system. Some private hospitals, however, have no time for heroism and are keeping coronavirus patients away, even if it means losing money. That is, at least in part, because those who own those hospitals have not invested in protective equipment. One might think that these places of medical practice, already rigged with all the necessary trappings, might just be used to treat Covid-19 in the current scenario. However, only a handful of private hospitals have established quarantine centers. In Lahore, only Ghurki Trust Hospital, Doctors Hospital, Bahria Hospital and Farooq Hospital have offered to establish quarantine centers for those who can afford to stay there. As things stand, people have stopped visiting hospitals for routine checkups and treatment, and there is a growing concern that the business of private hospitals will be shut down soon. A number of private hospitals have expressed concerns that they will never be able to recover from the losses they are facing. According to the 2019 Economic Survey of
Pakistan, there are 220,829 registered doctors, 22,595 registered dentists and 108,474 registered nurses. This gives us a ratio of one doctor for every 963 persons, 9,413 persons per dentist and one hospital bed available for every 1,608 persons. However, it is worth remembering that the vast majority of these medical professionals are private practitioners. What comes to mind when someone says ‘private’ hospitals are the likes of Doctor’s Hospital in Lahore or Shifa in Islamabad. But many doctors open smaller operations that are registered as hospitals, and many more run clinics, some from small offices within their homes. However, as the pandemic continues to spread, people continue to be wary of any place where medicine is practiced as a hub of disease, and private practitioners also hold back from seeing patients that might put them in the line of fire. According to data provided by an insurance company, there are currently nearly 2,000 private hospitals registered under all categories that operate across Pakistan. The breaks have been hit on these operations, and the shutters are down from orthopedic to dentistry clinics. But with a significantly long road to go ahead, how will private medical practitioners manage? Will private healthcare be in shambles and a distant relic in the times to come? And will innovations like telehealth have a significant impact on how medicine is practiced in a post-pandemic world? Profit takes a look.
What’s with the crunch?
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ou would think that things would be stable for the hospital business, if not booming. Even if private hospitals do not want to delve into the messy and possibly libelous business of testing, quarantining and treating for the Covid-19, one would not expect demand for them to go down. Just because there is a global pandemic, does not mean people are not getting sick in all the other ways that they normally would be. However, non-essential visits to doctors count enough, and so does the virus scare, because visit numbers have dropped drastically. With the lockdown and people generally cautious about visiting hospitals, except when a visit to the hospital is absolutely necessary, hospital visits for what would otherwise be called a normal consultation session have dropped dramatically. So even as frontline medical professionals serve extra long shifts and risk their personal well beings, private doctors are forced to give consultations over the phone. One doctor who is part of the hospital management of the upscale National Hospital
HEALTHCARE
“People are scared and fear has arisen in them due to Covid-19. The media has also played a negative role because they have scared people, including doctors and nurses. Who will take the risk when there are reports that doctors and nurses are dying from the coronavirus? We need to protect our doctors and paramedical staff first, and we don’t even have the proper PPE [personal protective equipment] to send them out into battle” Dr Muhammad Sarwar, President Private Healthcare Association in Lahore’s DHA, said that only a few weeks of lockdown in Punjab had seen the hospital’s occupancy rate drop by a drastic 90%. Running a hospital is not naturally an immediate cash cow business as it is, and such a drop in business does not bode well for the future of the business, even if it is temporary, said the doctor who wished to remain anonymous. “This situation could be fatal to the healthcare industry,” says Dr Muhammad Sarwar. He is the President of the Private Healthcare Association and one of the country’s leading cardiologists. “Private hospitals are a specialised kind of industry. We cannot ask patients already undergoing treatment to simply come back later.” According to Dr Sarwar, any hospital calculates its cost based on how much money they spend per bed. “If you observe the Government of Punjab’s health budget, the daily cost of a bed in a government hospital is around Rs15,000 per day,” he says. “For Mayo Hospital in Lahore, that has 2,000 beds, the provincial government incurs a daily cost of Rs30 million regardless of whether the patients occupy these beds or not.” “In private hospitals, the expenditures are doubled because there is no subsidy or nor donation. The daily cost of a bed in a private hospital is Rs30,000 inclusive the cost of operation, medication, tests or consultant fee,” he explains. “There are also bills, taxes, staff salaries and a lot of other expenses. Those who are healed give us bad prayers for charging money and those who die become our enemies for the rest of our lives.” In addition to these factors, private hospitals are also huge investments. A single 100-bed private hospital takes at least Rs2 billion in investment to set up before patients can start coming in. Such a hospital will have monthly expenses of at least Rs50 million and only the ones who earn more than that are able to survive, according to the doctor.
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Where are they going
T
he way private hospitals work is that the hospital provides doctors a place to work, trained staff, offices, equipment and all the things they need for their practice. In return, the doctors offer a commission of their earnings to the hospital. While the doctors have been affected, they have simply shifted their practice to digital mediums. The hospitals, however, are still as big but do not have the visitors to fuel them. If the monthly cost of say, National Hospital, is Rs100 million, it is now bringing in only Rs30 million. Turning a profit is long gone, we are not even close to breaking even,” says Dr Sarwar. “In such a situation, the hospital will either close its doors or invest if there is money on the backup. But they can’t afford to use their backup money for long, because they don’t have deep pockets.” “One of the major problems of hospitals is that they cannot lay off their staff as each staff member is involved in one shift or the other. If one staff member is removed from any shift, then the whole shift will be shut down and a proper hospital cannot even think of closing the entire shift.” The situation, to put it mildly, is dire. But these hospitals are still not considering going into treatment for Covid-19. For starters, a lot of private practitioners and staff at these hospitals would not be willing to put themselves on the line. Already, incidents have been reported in private hospitals where patients coming in for non-coronavirus related illnesses have had to face mistreatment from staff because they were suspected to have the virus. “People are scared and fear has arisen in them due to Covid-19. The media has also played a negative role because they have scared people, including doctors and nurses,” Dr Sarwar claims. “Who will take the risk when there are reports that doctors and nurses are dying
from the coronavirus? We need to protect our doctors and paramedical staff first, and we don’t even have the proper PPE [personal protective equipment] to send them out into battle.” He added that the coronavirus protected dress can be used only once. “If a staff of ten people is working in any ward of hospital, the cost of providing dresses to them is Rs10,000, since one dress costs Rs1,000. And if there are three shifts in the same ward then the cost will be Rs30,000 for one ward to run three shifts. This is not affordable because most of the people who come to our hospitals are salaried and cannot bear the additional cost of these dresses.” What the private hospital industry is asking for at this point is help. An official of the top management of National Hospital suggested that the government should give soft loans to private hospitals to stand again. “The Prime Minister is giving various relief packages to different industries then why are we being ignored? Large hospitals with a large capital can cope with this situation, but the government should think for the hospitals that rely on the profit and loss of monthly basis,” they said. Meanwhile, Dr Sarwar also suggested something similar, saying the government would have to do something to help the industry out. “Doctors in the private hospital industry are hired on the basis of competence and skill,” he said. “The government is well aware of all the issues our industry is facing. Contrary to popular belief, most doctors are middle class, and there should be something for this industry by the government.”
Telehealth’s moment?
D
r Sarwar’s case for government intervention in the private healthcare industry is based on an appeal for doctors that work there. The problem is, since these doctors are not the ones on the frontlines in the battle against Covid-19, they
will not exactly be the top priority. Then there is the fact that even these doctors have found other ways of making money in this time. And this is where telehealth comes in. The good thing about a skilled profession like medicine or the law is that you are never really unemployed because the world will always need more doctors and lawyers. In these times, doctors have simply switched to giving consultations over the phone and the internet. And the telehealth industry has been noticing, and taking advantage. The CEO of digital healthcare platform OlaDoc, Abid Zuberi, told Profit that the number of people visiting their application and website for consultation with a doctor had grown by 40-50% during the days of the lockdown because nobody was going to the hospitals anymore. So when people need to see a doctor, they go for telehealthcare. “The concept of telehealth is new in our system and with the onset of this pandemic, this turned out to be something inevitable for the time being. With social distancing measures at peak and facing the lockdown situation this seems to be a life saviour for the needy patients at the moment,” says Dr Fatima Bukharie, a Lahore-based consultant psychiatrist. “For instance, when every other person is suffering from the psychological effects of this pandemic, many psychiatric patients are relapsing back to the severe stage of their illness and without telepsychiatry, these patients could suffer a lot. Because of telehealth, they are still able to approach a qualified psychiatrist/ psychologist.” People choosing teleconsultation, as an alternative to going to a hospital or a private clinic to see a doctor, only when these hospitals and private clinics are not operating, tells us that telehealth is not a disruptor. And what does not disrupt would always remain a secondary choice. One can only make guesses as to how the post pandemic world will look, but it is clear that the virus is here to stay for now, and it is certainly forcing people to change their habits. But the prospect of telemedicine becoming the ‘preferred’ option for people to consult a doctor is contingent upon the COVID-19 lockdowns and social distancing measures continuing for a period long enough to change the habits of the people to create that ‘new normal’ in life. That much, hopefully, will not be the case. But there are constraints to creating that ‘new normal’. Firstly, whenever and wherever telemedicine is advertised, the phrase ‘improved access to healthcare’ always comes as a corollary. The reality, however, is that telehealth is still a long way to go to improve healthcare in communities that lack access to adequate healthcare, and the surge that it has received in
“People lack payment options. Moreover, people are skeptical about making advance payments to see a doctor over a telehealth app. They are further concerned about cancellations and returns. So people have these doubts and questions,” Abid Zuberi, CEO OlaDoc
the number of patients using teleconsultation during the lockdown, has mostly come from metropolitans like Lahore and Karachi. Even the forced adoption of telehealth in the rural population - the segment of population that is considered marginalised and that lacks access to proper healthcare and that forms the bulk of the total Pakistani population - has been slow. It has been slow even as the number of cellphones increases and high speed internet (3G/4G) becomes available even in remote areas. The bigger problem that prevents the mass adoption of telehealth, according to Zuberi, is the nonavailability of payment options, especially in the remote communities, and concerns surrounding digital payments. “People lack payment options. Moreover, people are skeptical about making advance payments to see a doctor over a telehealth app. They are further concerned about cancellations and returns. So people have these doubts and questions,” he says. “The experience is also not the same as a brick-and-mortar doctor office.” Telehealth is only qualified to provide healthcare services at primary level healthcare. At primary level is a patient’s first and foremost contact with a doctor, mostly a general practitioner. If at primary care level a doctor tells you that your symptoms might require a specialist’s attention because your symptoms might not be of a common disease, a visit to a specialist would be inevitable On the other hand, doctors with private practice are moving onto telehealth apps in swarms. There has been a phenomenal increase in the number of doctors signing up on telehealth apps, with OlaDoc disclosing to Profit that within 10 days, they have signed more than 2,000 doctors on their platform. Telehealth companies market doctors
on their platform to get more patients for that doctor, without the geographical constraints of physically reaching the doctor from far flung areas. Online consultations would also remove the costs associated with setting up and operating physical clinics, whereas the costs associated with working on telehealth apps might include marketing fee for the doctor on the app, a certain percentage on consultation fee charged by these companies - just like hospitals - or both. A doctor from Lahore’s Omar Hospital said that private consultants are making money these days by operating online. “Private doctors or consultants have never been liable for the profit or losses of the hospitals. They only visit the hospital and check the patients by charging their fee and pay a share of their earnings to the hospital. These private doctors are still consulting and taking patients through online clinics,” he adds. “In these lock-down days, some consultants have even cut their fees through online consultations, while some are still charging full fee,” he says. So the doctors might have the incentive to stay on these apps for longer durations, even after the lockdown ends, because it only enhances their earnings. But for the patients, the thinking about it would be different. “Though no service is perfect, telemedicine is a positive and growing medical treatment option. Studies continue to show that telemedicine saves time, money, and lives. With the healthcare model and healthcare beliefs we had in our society I think our people will be using this to some extent in times of emergency, or may be if this saves them finances in some way (travelling expense etc.) they would always prefer to see their doctor,” Dr Fatima Bukharie says. n
HEALTHCARE
By Meiryum Ali
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INSURANCE
A
customer described to Profit a typical way insurance is sold in Pakistan. He walked into his main bank branch for unrelated work regarding his bank account. After wrapping up his work, an agent walked up to him about a ‘saving investment scheme’. The agent made a pitch about getting high returns after a few years, after depositing a sum of Rs200,000. The customer thought it sounded like a good idea, and was also told that, by the way, this comes with some insurance benefits. The customer also assumed the agent was a bank employee, and went along with the scheme, as after all, he trusted his bank. He was told, again in passing, that he might not be able to access that Rs200,000 sum for a few months, but this was not made super clear to him. This would become a problem, because a few months later, during a financial crunch, he asked to get his money back. Whoops – that money was actually stuck in a life insurance scheme, and he would have to wait five years to access it. Almost everything about this anecdote is typical of how insurance is sold – that is, it is not sold as insurance. In fact, it is sold as an investment vehicle. Therein lies one among the many problems facing the insurance sector in Pakistan: the industry does not know how to sell its own product and has hence routinely relied on providing misleading information to its customers and highly skewed incentives to its employees and distributors. This embellishment of the truth that can often veer into outright lying on the part of some insurance salespersons is unlikely to do the industry any favours in a country where the overwhelming majority of people have never even considered getting insurance for themselves for any purpose. We do not say this lightly. But it is a fact: that the penetration of the insurance industry in Pakistan is absurdly low, even when compared to other countries with similar per capita income. In 2019, the insurance penetration in
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Pakistan was at 0.9% of the gross domestic product (GDP, or the total size of the economy). This is much lower than India’s penetration, at more than 3.6%, the region’s average of 2.2%, the emerging markets average of 3.2%, and the global average of 6.3%. Before one despairs, that figure is still a massive improvement on what it was previously: in 2012, it stood at a measly 0.67%. Which leads to the obvious question: what happened? Why are we struggling to insure 200 million Pakistanis? And whose fault is this? This, primarily, is a story of nationalization, lost time, lazy selling, and desperate attempts to change how Pakistanis change their spending habits (and that is harder than you think).
History of insurance in Pakistan
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n the great annals of insurance ads (bear with us), the ad ‘Ae Khuda Meray Abu’ from the 1980s has achieved some kind of cult gold status. It is included in the kind of YouTube suggestions for ‘PTV nostalgia’ or ‘old evergreen ads’, the kind featured in boomer longing for purana Pakistan. In the ad, a dorky looking 10 year old, complete with barrettes, clasps her hands and sings ‘Ay Khuda mere Abu, salamat rahay’ (Dear God, keep my father safe). The reason for her joy: turns out the very mustachioed Pakistani-looking father has bought an insurance policy. The daughter then hugs her beaming parents and the ideal, insured Pakistani family go out on a family outing on a paddle boat. Reminiscent of old wedding videos, the daughter’s head then floats about on the screen, still singing, along with a rotating State Life logo. The final frame freezes on the paddle boat, and the voice over reminds us: “the guarantor of your future: State Life.” Almost every source Profit contacted for this story asked if I remembered this iconic ad. [Aside: I did remember it, only because it was my parents who discovered it again on YouTube thanks “PTV nostalgia”]. But Profit asks you, the reader, if you remember this ad, because here is what we posit: that this ad was the last innova-
tive thing that the insurance industry of Pakistan ever accomplished in marketing before resorting to outright misinformation. The two biggest insurance players in Pakistan have traditionally been EFU Insurance, and Adamjee Insurance. EFU was set up in 1932, by businessman Ghulam Mohammad in Calcutta, with financial assistance from the Aga Khan III and the Nawab of Bhopal. The company then switched over to Pakistan after Partition. Meanwhile Adajamjee Insurance was set up in 1960, by the industrial family of the Adamjees, whose conglomerate has existed since 1896. Now back to that ad, commissioned by State Life. Today, State Life insurance is the largest life insurance company in Pakistan. But it was not always that way. In 1972, 32 insurance companies were forcibly nationalised, and folded into one State Life Insurance under Prime Minister Zulfikar Ali Bhutto and PPP’s nationalization agenda. EFU then operated solely as a general insurance company, and was subsequently renamed EFU General Insurance Ltd. Today, the company is owned by the JS Group. The state of affairs would stay this way, until 1992, when private insurance players were allowed back in the game, under then Prime Minister Nawaz Sharif, and his privatisation process. This allowed for players like Jubilee Life Insurance, which was incorporated in June 1995. The company is a subsidiary of the Aga Khan Fund for Economic Development. Today, Pakistan has 36 insurance companies, of which seven are life insurance companies. Those seven life insurance companies have a disportionate hold on the entire industry, accounting for around 63% of total gross premiums. The total size of the industry is Rs308 billion. The three major companies – EFU Insurance, Adamjee Insurance (which is now part of the Nishat Group, the conglomerate owned by Mian Muhammad Mansha) and Jubilee – have maintained a quasi triopoly on the market. Among life insurance, the largest player is State Life with a 50% market share, followed by Jubilee Life, then EFU Life, and then Adamjee
“The way life insurance is sold is a big problem. This becomes a structural issue, and then also a knowledge issue. People view life insurance, as oh, banda mara nahi hai, I guess there’s no point. [They then want their money back] They don’t understand that it’s like if your house isn’t robbed, does that mean you ask for your chowkidaar’s salary back?” Muhammad Aminuddin, CEO of TPL Insurance Life (a subsidiary of Adamjee Insurance). In the general insurance, or non-life insurance space, Adamjee dominates with a 26% share, followed by EFU General Insurance at 24%, and Jubilee General Insurance at 12%. Despite the low penetration rate, on the bright side, the gross premiums of Pakistan’s entire insurance industry has a five-year compounded annual growth rate (CAGR) of 17.7%, from Rs136.3 billion in 2013, to Rs308 billion in 2018. Life insurance has a CAGR of 17.5% while non-Life grew at a relatively lower CAGR of 9.6%. According to Nilofer Sohail, assistant general manager at EFU Life, and head of digital initiatives there, it is a miracle that these three companies even exist to begin with. “These companies basically started from nothing, around 1994, to grow into what they have become today,” she says. Consider: State Life has a network around 80,000 to 90,000 agents across the country. EFU has only 7,000, Adamjee around 1,000 and Jubilee around 4,000. According to Sohail, that stark contrast in numbers can be attributed solely to the lost years of nationalisation. But the insurance industry has also grown in fits and spurts. Since the 1990s, there have been two big ‘nudges’. The first nudge happened in the early 2000s, when bancassurance as a concept really took off. Bancassurance is when a bank and an insurance company form a relation-
ship to offer insurance products to the bank’s customers, and split the commissions. Sohail says the advent of foreign banks in Pakistan, like Standard Chartered and ABN Amro, had successfully introduced the concept in other markets, and decided to try it out in Pakistan. It was wildly successful. Consider that bancassurance accounts for 88% of gross premiums in Jubilee, 90% in Adamjee Life, and 60% in EFU Life. The second big ‘nudge’ happened in the late 2010s, and is continuing to this day. This is when microfinance banks really took off, and the State Bank of Pakistan (SBP) and the Securities and Exchanges Commission of Pakistan (SECP) both heavily pushed digital payments as a solution.For decades, insurance companies had been targeting, middle income and above. According to Sohail, that meant those earning around Rs70,000 to Rs80,000 a month. In the last three years there has been a definitive switch. “No one was thinking of Rs25,000 or Rs50,000,” says Sohail. She says people were still thinking in terms of ‘cheques’. Digital payments have allowed insurance companies to suddenly think of people who can pay Rs2,000 or Rs3,000 per month, and in some cases, like EFU’s partnership with Easy Paisa, as little as Rs1 or 2. The challenge is not necessarily innovation – almost every company is trying out new and interesting ways of selling insurance. The problem is that the main channel through which
insurance is sold – third party agents at banks – needs to be broken.
Mis-selling
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ook back at the earlier split of the insurance industry – almost 63% is dominated by life insurance, while the remaining by general insurance. In developed markets, the inverse is true – life insurance is a minority. But Pakistan, like other emerging countries, continues to rely on life insurance. For Muhammad Aminuddin, the CEO of TPL Insurance, the way life insurance is sold is a big problem. “This becomes a structural issue, and then also a knowledge issue,” he says. Because people are not informed of how insurance works, they often begin to view insurance as something that will give returns, with insurance as a side benefit, as opposed to what it actually is – a way of mitigating risk. “People view life insurance, as oh, banda mara nahi hai, I guess there’s no point. [They then want their money back] They don’t understand that it’s like if your house isn’t robbed, does that mean you ask for your chowkidaar’s salary back?” says Aminuddin. Industry sources say the problem of mis-selling is rampant. The problem has nothing to do with education level, or socioeconomic
INSURANCE
“No one was thinking of [people earning] Rs25,000 or Rs50,000 [as potential insurance clients]. People were still thinking in terms of ‘cheques’. Digital payments have allowed insurance companies to suddenly think of people who can pay Rs2,000 or Rs3,000 per month [in premiums]” Nilofer Sohail, assistant general manager at EFU Life
level. One insurance executive said he had both his finance friends come up to him, to his driver’s sister, whose money was stuck in a similar insurance scheme for three years. And it almost becomes like a chicken and egg problem: bank agents sell insurance in this mamner to customers, who then believe the lie of (insurance = investment), who then do not buy or understand other types of insurance, so insurance companies continue to sell insurance as if its an investment in order to make sure customers still buy it - and so on ad infinitum. This can lead to a trust deficit. Because customer’s money is stuck in insurance, they also are less inclined to tell their friends or family about buying insurance, instead viewing the entire industry as a nuisance. So why do banks and insurance companies go along with it? Well, because the commissions are extraordinarily high, touching 55% of total premiums in some cases. This stands in contrast to commissions in other countries, which are considerably better regulated, with some markets having commissions restricted to even 5-10%. So mis-selling is common because it does not really affect profits, it allows insurance companies to be replaced, and it allows this bancassurance system to remain unchallenged, and in some cases, uninnovative. To be fair, the SECP has recently become aware of this problem in the last two to three years. According to Sohail, every agent must now call back customers and ask seven or eight script-
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ed questions about whether the customer has understood the terms of the insurance product. These also now include several references to the fact that money might be stuck in the insurance products for some years, before it can be accessed. “The complaints ratio has now fallen to 1 to 2%,” claims Sohail, saying that was a normal rate for any industry.
Cultural norms and awareness
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efore the interview with Sibtain Jiwani, the founder of insurance startup Smartchoice, even began, he asked: “Do you have insurance?” I did not. But I am not unusual, as Jiwani pointed out, because not only did I not have insurance, but neither did my friends, nor my cousins, nor had it ever been a family topic of discussion. This is emblematic of the typical Pakistani experience: insurance as a conversation or a feature of our lives simply does not exist. The problem with insurance companies is not just their lazy attitude towards getting profits. They also did a lousy job of advocating for insurance. And they desperately need to, if they are ever going to combat how Pakistanis view protecting themselves. “India is not really a comparable market,” says Aminuddin. “The savings abilities of India is much higher whereas Pakistanis are very ‘live it up, don’t’ worry about it. We are a very consump-
tion-based economy”. That attitude plays into how we view the future. “There is no awareness of risk mitigation, and therefore it is faith-based. Our idea of insurance is a kala dhaga, and the Ayat ul Kursi,” he says drily. This is unfortunate, because events such as the COVID- 19 pandemic have shown how crucial insurance can be in solving financial challenges. “When you have health insurance, you don’t have to raise money from your mohalla, or bemoan and say you are destitute,” said Aminuddin. Jiwani also brought up India as a comparison. “India is way ahead of us in terms of financial literacy, and there is also a lot of domestic travel for work within the country,” says Jiwani. As more and more young Indians settle in different cities, they often have financial responsibilities thrust upon them earlier in life. Jiwani, who is in his mid-30s, said he did not think really about managing money or a household until he was 28. “Financial responsibility comes a lot later in Pakistan,” he says, which explains why people simply do not factor in insurance, whether that is life, house or car. Jiwani is hopeful that this attitude is changing, as more young Pakistanis are self-employed and working as freelancers, and typically even have some money saved on the side during university. But are insurance companies thinking of reaching out to a new generation? And what if they were just forced to?
“Insurance companies are coming to the realisation that alternative channels exist, that you can make innovative products which are bitesize. More millennials are entering the workforce, and saving and investing money - insurance can help in protecting your future from uncertainty” Sibtain Jiwani, founder and CEO of Smartchoice, an insurance startup
The government’s role to play
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lot of insurance companies’ lives would be made a lot easier, if it was simply mandatory to buy insurance. That would automatically increase the number of Pakistanis insured – and it would solve the problem of Pakistanis not knowing what insurance exactly is. Pakistan is unusual in many ways for not mandating insurance for large purchases. Take car insurance for example. It is not just the fact that car insurance is not mandatory in Pakistan - it is the fact that up until 15 years ago, the industry barely existed. As Aminuddin describes, the motor insurance industry came about, again, because of a ‘nudge’. In the turbulent Karachi of the mid 2000s, carjacking was on the rise, and companies like TPL Insurance sought to sell motor insurance. The regulator could easily make this mandatory, but chooses not to. “The legal infrastructure is there, but the implementation has been lacking,” according to Aminuddin. “NADRA has the single largest database at its fingers – enforcing it would be a breeze – but it’s about priorities.” Jiwani says it could be easy to make car insurance mandatory, as it already is in India and the UK. “Every time you buy a car you have to have third party insurance,” he says,”
You could pay Rs2,000, Rs3,000 per month for third party insurers – not only do you protect citizens from accidents, but you could get more people involved in insurance.” For Jiwani, the net spillover effect is very real. “You’ll get people in the mindset of insurance. If an insurance company is paying for damages, then road par fazool jhagray will stop happening.” That spillover effect could happen at the workplace, for instance. If the government mandated that all employers must provide their employees health insurance, then it would become a social responsibility. If an employee can see the benefit of receiving insurance when someone else is paying for it, he or she might be incentivised to then consider buying life insurance for their family. “You can alway bring more people into the insurance ecosystem, but you have to give them a reason”, says Jiwani. If the plan is so great, why has the government not done it yet? According to Sohail, for the last few years, the SECP has annually gone to the Ministry of Finance to ask them to consider changing insurance laws. And every year, the answer is the same – the government of Pakistan is concerned about burdening the taxpayer. In a country as poor as Pakistan (so the government’s thinking goes), can Pakistanis afford to pay insurance premiums?
The future
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o what does the future hold for the insurance industry, if government-mandated insurance is not on the cards yet? Well, that depends. For some, the future of insurance will be defined by insurance companies aggressively pursuing the consumer sector, in an attempt to get maximum coverage. So far, non-life insurance companies had been courting corporate clients. That is set to change. Or perhaps the future will look a little like what Jiwani is attempting with Smartchoice. The insurance startup, only a few years old, serves as a comparison website for different insurance products and policies. Smartchoice has partnered with 10 different insurance companies, and customers can buy different types of insurance by simply comparing different policies. The agent in this scenario becomes obsolete. “Insurance companies are coming to the realisation that alternative channels exist, that you can make innovative products which are bitesize,” says Jiwani. “More millennials are entering the workforce, and saving and investing money - insurance can help in protecting your future from uncertainty.” To get there though, might be a bit of an uphill struggle. Pakistan’s insurance industry will have to finally get on the digital payments bandwagon, stop their overreliance on agents, and spend extra time and effort educating their customers. The days of “Ay Khuda Mere Abbu’ should finally be left behind. n
INSURANCE
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The Covid-19 pandemic is wreaking havoc all over the world, and retailers have taken a major blow. Profit looks into So Kamal to try and explore the impact of the disease on fashion retailers, and how players in the industry plan to get back up from this By Hassan Naqvi
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s the Covid-19 pandemic takes hold in Pakistan, much like the population, businesses are going in retreat, curling up in a corner and trying to brave out this unexpected storm. Things were bad as it was, and there were only moments of hope and small glimmers of businesses fighting back and trying their best in an otherwise faltering economy. Even before Covid-19 has reached its peak globally, signs of the most major recession in a century are setting in. The worst hit have been retailers, with exports halted, stores shut down and online delivery systems in disarray. Small businesses will shut down, there will be mass unemployment, and empires will crumble. In the middle of it all, the only businesses that have a chance at making it through without complete destruction are the ones that will keep calm, keep their eye on the ball, and see this time through with as much poise and grace as
possible. One retail brand mulling these questions is So Kamal, the trailblazing fashion company that has made its presence felt in Pakistan’s constantly burgeoning lawn and clothing market. Had the current pandemic not reared its ugly head, So Kamal and its competitors such as Gul Ahmed, Sapphire, AlKaram Studio and others would have been heading into an ugly battle of competitive winter clearance sales and new prints hitting their stores for the summer season. And even if the fear of illness had not deterred those hunting for the best lawn deals, the fact that all stores are closed now will mean eerie silence. No videos of customers jostling and pushing to get three piece suits and queues outside Sapphire stores will just be another small way that the world will be different this year. And while there should be little doubt that eventually things will return to normal, one wonders just how debilitating this virus will be. Will the same brands still be around by next summer if the virus is gone by then? More importantly, even if the brands are still around, will there be the same demand? Or
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“As an organisation, we have had to take some unfortunate measures, the first of these has been tightening our belts and hoping for the best for the country and the world at large. However, we are still trying to develop new ways to serve our customers without compromising on our employees’ safety and well-being” Erum Ahmad, CEO So Kamal will we see a slow death in what was until last year a significant assertion of local women’s fashion interests? Profit sat down with So Kamal’s Chief Executive Officer (CEO), Erum Ahmad, to talk fashion, the retails market, the future, and how the brand is planning on staying afloat during this pandemic, and what silverlinnings they are possibly looking at.
A Chinioti story – sort of
“I
feel this season, we will see more tailored silhouettes and pleats with lots of volume. In prints, I foresee a dominating movement towards lured florals and ombre designs,” Erum Ahmad tells us. For her, it is all about the fashion, and she speaks as if the season is still alive. “Our fashion research department has worked very closely with the design team to create very unique fabrics weaves and finishes this season.” For Erum Ahmad, she is still thinking about business. Things may be bad now, but her philosophy remains the same, think about fashion and you will end up selling clothes. Already, she is thinking about how to ramp up after all this is through and using this time to increase So Kamal’s online shopping presence. The bug for business is a matter of blood and soil for the So Kamal CEO. She is the daughter of the late Sheikh Ejaz Ahmad, who was a Senator during the Zia Administration in the mid-1980s, and one of the leading textile mill owners in Karachi. He was one of the leading members of the Chinnioti business community that has over the years come to have an unusually large presence and impact on business, particularly in Karachi. Back in 2017, Profit’s first business editor and a giant of the English press, the late Agha Akbar, had chronicled the rise of the Chinnioti Sheikhs in a masterful feature that is still worth reading today. And while Erum grew up a product of Karachi, she carries the Chinnioti tradition proud-
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ly, and was married at age 18 to Ahmad Kamal, another Chinnioti businessman and the Chief Executive Officer (CEO) of Kamal Ltd, one of the oldest textile vertical industries, and the last business group’s to be featured in Profit’s 2017 feature. By Karachi upper-class standards, she married early, but well within the norm for the Chinnioti community. During the first two decades of her marriage with a leading textile miller, she completely devoted her time for her children at their Faisalabad home. But that never stopped her from pursuing other interests, and she studied interior design from Rhodec International along and continued to keep up with the world of fashion and textile design. Soon after the kids were grown up, she joined her husband’s business, and within a few years established herself as the head of a successful design house. It was after three years working on international markets that Erum made the move to bring the Kamal group into retail, which materialised in So Kamal in 2012, which is now a significant fashion retailer in the country. Kamal Ltd is a vertically integrated textile company, with in-house spinning, weaving, processing, printing, finishing and stitching facilities. They initiated their first domestic initiative with the now critically acclaimed Kamal lawn by Elan, followed by Kamal Lawn by Zara Shahjahan in 2013. This was followed by the introduction of So Kamal-their first retail space, A lifestyle store located at 10Q (flagship) in Lahore. In a few years time, Erum managed to expand So Kamal to 30 outlets nationwide. 11 in Lahore, two in Islamabad, two in Rawalpindi, two in Faisalabad and one each in Multan, Shahkot, Rahim Yar Khan, Sargodha, Swat, Sahiwal, Hyderabad, Muzaffarabad, Okara, Mardan, Azad Kashmir and Sialkot. The story is a fascinating one, especially given that the Kamal group delving into fashion retail was initially seen as an against the grain decision. As previously mentioned, it is a Chinnioti empire, started by the grandfather of Ahmad Kamal when he returned to Lahore from
Calcutta after Partition in 1947. While the company has in the past taken different turns, such as switching to the chemical side, they have always come back to textile exports and are one of the oldest vertical textile concerns, with operations related to textile starting from spinning, weaving, printing, processing, home textile, garment manufacturing, socks manufacturing and retail. In the fiscal year ending June 30, 2019, Kamal Ltd was the 32nd largest exporter of Pakistan with exports worth $92 million. But more importantly, they were still going ahead with their expansion of So Kamal, and thinking about how to make this side of the business bigger and better. Right before the current Covid-19 pandemic, Erum was already thinking about how to dominate this season in summer and spring, and to ramp up So Kamal’s online retail game to attract much needed online clientele with changing times and business realities. But with the pandemic in full swing globally and just getting started off in Pakistan, So Kamal finds itself in retreat instead of on the charge, along with all of its competitors. But what can they do to stay ahead?
Meltdown
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s an organisation, we have had to take some unfortunate measures, the first of these has been tightening our belts and hoping for the best for the country and the world at large,” Erum tells us. “However we are still trying to develop new ways to serve our customers without compromising on our employees’ safety and well-being.” This is clearly as bad a time as any for anything, but retail is being hit particularly bad across the country. In a situation like this, the priority should be to take care of one’s workforce, particularly those daily labourers that are most affected. Because once this is through, businesses will still need people around to help
them get back on their feet, and a devastated workforce will not be able to do the needful. As individuals, as organisations, as a nation, we will all have a story to tell about how we presented ourselves in this almost primitive moment of raw humanness. We will all want to be proud of how we behaved, and it will be a worse world if we come out of it ashamed. On the front of it, Erum Ahmed seems to agree. “It’s important for us to stay united and take care of each other during this challenging phase. We can only hope for the best at this hour,” she says. One can only hope the same kind of ethos is present in the rest of the business community, and that the weakest segments of society are looked after as they need to be. But despite this message and feeling of responsibility, So Kamal does not have any scruples about just how dire things are going to get. She knows that the impact of Covid-19 on Pakistan as a whole and especially the textile sector and retail market will be massive. And as she confesses, the longer it continues, the bigger the impact will be, including losses, small businesses completely closing and people losing their jobs. “While businesses can step up and do everything possible to take care of their people, we are also looking at the government for support like other governments around the world have done for their industries,” she hinted. The government, however, is busy, or at least should be. And the scary reality may just be that businesses are on their own.
Expansion plans?
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he world has essentially been stopped in its tracks. Along with it, so have Erum’s plans for So Kamal and for the larger direction of the historic Kamal group. If this feature were being filed even a month ago, it would be about a major textile industry as old as the country investing in and paying considerable attention to a fashion retail business set up less than a decade ago. It would be about an ambitious woman making her mark in the world of business, and about her aggressive plans for expansion. Instead, we are in a position where we can discuss little more than how these unexpected times we are living through will affect all of us and the things we hold so dear. But whether it is hopeful or naive, Erum still seems to hold that So Kamal will still expand the way it was always meant to in her eyes. And the most important part in this for So Kamal is to first and foremost place an aggressive approach not only when it comes to opening more retail outlets, but also developing and strengthening their online sales platform. “While it’s great to be physically present
The story is a fascinating one, especially given that the Kamal group delving into fashion retail was initially seen as an against the grain decision. As previously mentioned, it is a Chinnioti empire, started by the grandfather of Ahmad Kamal when he returned to Lahore from Calcutta after partition in 1947 for customers to see the products, online sales gives you the edge of reaching clients that want to shop from the comfort of their homes due to different reasons,” Erum says. “And you can see just how important it is now more than ever. Currently, brands across industries are almost entirely keeping their heads above the water because of their online sales platform.” In addition to wanting to open more outlets in the south region, around five more in the next couple of years, she said that her true passion right now was to make So Kamal the leader in online services. “Our plans have not changed at all, in fact, we have just learned that this is even more necessary” she says. She is not wrong, even in a best case scenario where we are in a position to exit lockdown in a couple of months time (a magical, wonderful, brilliant hope), it is becoming clear that life as we knew it will not continue as it did before this time. We will still need to be careful, and distancing will be the way to go for long after any hope of measures being eased, not even lifted. If brands like So Kamal are to survive, online will have to be the way to go. Especially if this is one of those moments, and it very well could be, where the nature of the world as we know it is at a liminal stage. When asked how they are strengthening online sales operations and what procedures are being adopted, Erum said that they have developed a very strong e-commerce team over the years. “Our aim is to make more and more customers use the online services by offering them perks and making the interface as user friendly as possible,” she claimed. “We are also investing in training of our staff, development of a simple and efficient interface and automation.” “All the major retail brands abroad have shut down as of today. On top of that not only it is difficult for businesses to carry on business as usual, governments have also imposed bans or export controls on exports,” she noted. When asked what the future of the fashion retail market is, the leading fashion retailer said that no one can exactly predict the future but we can say that by definition, it’s always changing. “It’s an industry that needs to keep moving to survive. Collections come and go with the seasons, bringing with them a fresh wave of
trends that may lose their allure by the coming year,” Erum said. She said that some of the trends every brand is adopting globally are digital fashion collections, experiential retail, 3D printed garments, trend-predicting AI, robots, and an ever-growing awareness towards social and environmental issues. The fashion industry is changing fast. What seems a good sign for So Kamal is that they want to change with it, and just that may put them in a good position.
Why So Kamal?
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rum is clearly proud of her brand, but there are some very specific reasons why she thinks So Kamal will beat out its competition and own the fashion retail market in Pakistan, perhaps making it a bigger cashcow than the Kamal group’s export oriented production. And with the economy crippled globally, and weak for a long time to come, focusing on domestic retail coming out of this might not be the worst idea in the world. She also thinks that So Kamal has an edge over Sapphire, Gul Ahmed, AlKaram Studio and others because of their “design policy, experience and vertical integration.” “Our products are almost instantly recognisable and different from all other brands in the market. We have been in the market for a few years now and we would like to consider ourselves as trend setters, particularly when it comes to textile designer partnerships that were very popular a few years back,” she says. “Our vertical integration – unlike most brands, we have an edge with our vertical integration capability,” Erum stated. “Better online sales service, competitive pricing and streamlining of our vertical integrated supply chain which enables us to control the entire process from raw cotton till the stitching of the final product, offering the best quality of fabrics to our customers.” Every department at So Kamal is continuously improving its efficiency and reducing overheads on a daily basis she claims. “Some of the measures that we are taking include but are not limited to enhancing online sales focus on both new customer acquisition and old customer retention and implementation of a more automated retail system.”n
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OPINION
Asif Saad
Third World, pause. Time for an agenda reset Is there a silver lining to the Covid-19 pandemic?
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ith the global novel coronavirus pandemic affecting the entire world, most regions and countries are looking at the unfolding situation in terms of horrifying scenarios from the public health and economic perspectives. The alternate future scenarios oscillate between bad and worse, depending upon what you read or who you listen to. As the numbers of those infected and killed by the virus escalate, it is hard to imagine anything positive associated with this situation. But I have been thinking about the political economies of third world countries such as Pakistan, as well as most of South Asia, the Middle East, most African states and developing countries in Central and Latin America. All these places suffer from fragile political systems with political and economic power firmly in the hands of a few. In other words, each of these fragile systems is marked by some sort of elite capture, with most economies qualifying as rentier ones serving the interests of the powerful. In these countries, irrespective of the casualties inflicted by COVID-19, is this not the time to reset the
Asif Saad
is a strategy consultant who has previously worked at various C-level positions for national and multinational corporations
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However, for people living in the third world, we see the lack of progress in most of the MDGs, and health remains a largely unmet need for the general public. This is certainly true for Pakistan, where despite some miniscule efforts in the public health domain, our real priorities have been different
political economy and to restructure these societies to become useful for the masses instead of the few? Looked at like this, is there an opportunity and a silver lining for these countries? Does the situation present an opportunity for nations like ours to reset their political and economic agendas in the context of the current health and economic scenarios? If so, what would that look like? The coronavirus has made two issues paramount for everyone: Public health and its economic impact. The international community gave these issues their due recognition well before the coronavirus. All countries agreed on the Millennium Development Goals (MDGs) at the start of the 21st century. “The MDGs are interdependent”, as WHO (www.who.int) has noted: All the MDGs influence health, and health influences them. “Better health enables children to learn and adults to earn. Gender equality is essential to the achievement of better health. Reducing poverty, hunger and environmental degradation positively influences, but also depends on, better health.” The MDGs set explicit targets to tackle extreme poverty and promote human development. To this end much of the international development assistance to poor countries is directed towards the social sectors. However, for people living in the third world, we see the lack of progress in most of the MDGs, and health remains a largely unmet need for the general public. This is certainly true for
Pakistan, where despite some miniscule efforts in the public health domain, our real priorities have been different. This is most evident in how we allocate our meagre resources. According to the World Bank, from 2000 to 2016, Pakistan spent less than 3 percent of its annual GDP on health, and about the same on education. Our neighbours in South Asia are hardly any different, with both India and Bangladesh spending on these sectors in the same range although the numbers vary in particular years. The average rate in sub-Saharan Africa is higher - almost 6 percent, driven by frequent prevalence of disease. In comparison, Organization for Economic Co-operation and Development (OECD) countries spend an average of 10 percent on health and over 5 percent on education. Their combined figures for the social sectors are consistently in double digits, to meet the needs of their populations. And even then, the COVID-19 pandemic has caused havoc to their health infrastructures. For developing, economically struggling nations like ours, finding relatively unlimited resources to fight the novel coronavirus would be no small miracle. Imagine: Pakistan announces a USD 8 billion package to fight the health and economic woes brought about by this pandemic! Who will stop any government from doing this or much more? After all, this is war and wars require everything you can muster to be thrown at the enemy. I contend that we should fight this war in a sustained way and keep on going - forever. Countries like Pakistan have for decades had an economic structure dominated by a few. The state has found it difficult to build a society capable of providing equal opportunities to all its citizens for success in any sphere of life. On the few rare occasions that someone has tried sincerely to level the playing field, they have come up against obstacles driven by the various inherent conflicts in our social fabric. Whichever way the conflict manifests, the end result is to stay with the status quo. This is where the positive side of the current viral pandemic emerges. Who doesn’t want to fight it? Politicians, different ruling parties in all provinces, are in a race to outperform each other in coming up with the
better response; the establishment knows this is a different war but one where their efforts must be visible so they can stay relevant; the religious lobby is accepting physical distancing (the preferred term now over social distancing) even to the detriment of Islam’s holiest rituals; and socially active liberals are confining themselves to their homes surviving with virtual get-togethers. In this situation, if third world leaders say today that the only war we need to fight is public health and education, who can oppose them? Would we then be able to actually divert maximum public finance to increase spending on the social agenda, particularly health? Certainly, allocation of financial and human resources is not everything. But it is definitely a starting point, and a major starting point right now. In Pakistan, the ruling Tehrik-e-Insaf led by Prime Minister Imran Khan has long been saying they want to build “Riyasat-e- Madina” – an ideal state providing justice and equality to all citizens. Will they ever have a better chance than this? To make good their promise,
For developing, economically struggling nations like ours, finding relatively unlimited resources to fight the novel coronavirus would be no small miracle. Imagine: Pakistan announces a USD 8 billion package to fight the health and economic woes brought about by this pandemic! Who will stop any government from doing this or much more?
they need to change their current narrative, build a consensus with all institutions and political parties, and make a collective pledge via federal and state legislatures to continue this war indefinitely. They will have to find resources from wherever they can; reallocate from whatever else Pakistan has been spending on for 70 years and reimagine the state with this enhanced allocation to the social sector. The upcoming federal and state budgets provide an ideal platform to launch the resetting agenda. There is likely to be some relief and softening of terms regarding international debt, which could be used to begin the change process. In any case, from here on, public health is going to be the biggest talking point. It is not difficult to see that politics will revolve around this issue for some time – probably long after we emerge from the current crisis with whatever losses we sustain. Can Pakistan government deliver all this? What about other countries in similar situations? I am not sure, but one thing is clear, this is the time to make states work and make them relevant to the people. When entire populations are on the same page, reform becomes easier. This is a once-in-a-lifetime opportunity. It is imperative that policy measures and public discussion throughout the third world continue along these lines. In brief, we cannot let this opportunity go to waste and risk our economic structure limping back to its previous self, post Covid-19. Victory, as the ancient Chinese strategist Sun Tzu said, comes from finding opportunities in problems. n
COMMENT
Bank spreads take a hit even before the COVID-19 pandemic
And so ends the nearly two year run of completely unwarranted high bank spreads and interest income
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efore the COVID-19 pandemic, and before the drastic cut in interest rates, banking spreads were already experiencing a tough time. The weighted average banking spreads declined by 33 basis points on a month-on month basis to 5.37% in February 2020. In fact, this drop is just part of a sequential decline, as it represents the fifth decline in the last seven months. A bank spread refers to the difference between the interest rate that a bank charges a borrower, and the interest rate a bank pays a depositor. The bank spread can be thought of as a percentage that shows how much money the bank earns, compared to how much it can lend out. On average, lending rates dropped by 28 basis points to 12.37% in February 2020, while deposit rates increased by 5 basis points to 7% during the same period. Thus, the average banking spread becomes 12.37 - 7, or 5.37%. “We believe ongoing slowdown in credit offtake (Feb-2020: +4% YoY) has further pushed banks to work with selective higher asset quality clients, hence offering lower lending rates,” wrote Amreen Soorani, a research analyst at JS Global, an investment bank, in a note issued to clients on April 3, 2020. So, what happened? During February 2020, the 6-month Karachi Interbank Offered rate (KIBOR) - or the rate at which banks lend to one another - remained unchanged at 13.49% (the policy rate at this time was 13.25%). According to Soorani, this reflected a squeeze in lending spreads offered over KIBOR. However, the fresh spread - or the difference between loans disbursed during the month, and fresh deposits - had an increase of 50 basis points, to 6.43% in February. This comes with a catch - as Soorani notes, the lending rates on loans disbursed during the month, also known as gross disbursements,
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actually declined by 66 basis points to 13.10%. Meanwhile, the lending rate on fresh deposits declined by 116 basis points to 6.67%. The problem is not just that a smaller spread reduces a banks’ profitability, as they now have to pay a higher interest on deposits, but earn a smaller return on loans. It is that this is not even the worst of what is yet to come. February’s figures do not include two actions that the State Bank of Pakistan took in March 2020. First, in the wake of the COVID-19 pandemic, the State Bank of Pakistan cut the policy rate by 75 basis points on March 17, from 13.25% to 12.5%. Then in an unprecedented move, the SBP cut the policy rate again just one week later on March 24, by 150 basis points to 11%. Second, the State bank modified the interest rate corridor, narrowing the floor rate from 150 basis points below the policy rate, to 100 basis points. In this case, it will now be 10%. This action will now increase the deposit rate by 50 basis points. “These developments will act as a twofold blow to the banks, further trimming spreads in the coming quarters,” said Soorani. Pakistani banks will want to protect their net interest margin (the difference between the average interest income generated through loans, and the average interest income paid out to depositors) as it gets eroded. So, these banks have been increasing their investments in Pakistani Investment Bonds (PIBs). However, that still might not be enough. The shorter tenor bonds, which make up around 50% of the investment book are going to be repriced in three to six months with the now moving interest rate. It wasn’t always like this. In fact, these shrinking spreads will come as a rude shock to the banking industry, who has instead experienced rising interest rates over the last two years, due to higher inflation. In particular, 2019’s rising interest rates
were a windfall for pakistani banks. To reiterate, at the start of 2019, the policy rate was 10%. Subsequent policy reviews – in January, March, May, and July – increased the policy rate by a total of 325 basis points to 13.25%. This then remained unchanged all the way until the cut on March 17, 2020. The result? Pakistani banks saw their net interest margins rise, which resulted in rising profitability despite a slowdown in loan growth. This is all set to reverse, particularly with the policy cuts. In fact, a Moody’s report from April 2 said as much. Moody’s Investors Service, which looks at five Pakistanis banks - Habib Bank Limited, National Bank of Pakistan, United Bank Ltd, MCB Bank Limited - said that the while the lower interest rates on loans will also improve borrowers’ repayment capacity, the lower rates will reduce net interest margins and diminish banks’ earnings. Still, not all will be lost. A similarly gloomy research report from AKD Research on March 30, by senior analyst Hamza Kamal, noted that despite the reduction in bank spreads, there could be some mitigating factors in the short run. This is due to the recent State Bank relaxations and decisions to help borrowers under COVID-19. In its relief package for borrowers announced on March 26, the central bank also relaxed the regulatory criteria for restructuring of loans until March 31, 2021. Loans that are rescheduled within 180 days from the due date of payment will not be treated as defaults. This will help give some time to banks to fix non-performing loan issues in the short run, thereby helping with spreads. Similarly, the central bank also reduced the capital conservation buffer from the current 2.5% to 1.5%. On a whole, this will allow banks to lend an additional amount of around Rs800 billion, an amount equivalent to about 10% of their current outstanding loans. Again, according to Kamal, this decision will help banks absorb risk. n
MONETARY POLICY
As the energy sector faces a supply chain malfunction and a possible emergency in the wake of the Covid-19 pandemic, what should Pakistan be doing?
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By Imranul Haq
he coronavirus pandemic will affect everything and there is no reason to believe that the energy supply chain will be any different. For an energy-import dependent country like Pakistan, that matters a great deal more than a country that has sufficient domestic supplies of energy. Before taking the sensational and perhaps drastic step of declaring an energy emergency, Pakistan needs to weigh its options, evaluate what the country’s best possible course of action could be, and adopt the most favourable and feasible energy scenario possible. Saying this makes sense, of course. It is always good to weigh options and figure out the most favourable situation. Where the problem comes in is that to do this, you need to evaluate past data
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and mine through it to find the root cause rather than any hasty measures. And before we begin panicking about the liquefied natural gas (LNG) supply chain facing collapse, or pointing fingers left right and center, it is important to make use of competent, knowledgeable people, to move forward under their advice to achieve our collective goals. And with the global LNG supply chain in a mess, and Pakistan’s domestic gas production at an all-time low, here is the state of the possible energy crisis we may be facing.
Where things stand
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hat will be most important in this process are the facts, and a good place to start is the Oil and Gas Regulatory Authority’s (OGRA) flagship 2018 “State of the Industry Report”. In this report, OGRA noted that “domestic gas production would continue to decline from about
3.3 billion cubic feet per day (bcfd) in the fiscal year ending June 30, 2018 to less than 1.6 bcfd by 2028 while the gas dem¬and would keep going up to reach 8.3 bcfd by that year with shortfall increasing to 6.6 bcfd by fiscal year 2028.” To put this in context, natural gas’ share in our primary energy mix is around 48% and the share of regasified LNG in the overall gas supply increased to 23% in fiscal 2018, the latest year for which complete data is available. That made up the shortfall due to proactive steps undertaken by the energy ministry. The power sector was the main consumer of natural gas during the fiscal year 2018, consuming 37%, followed by the domestic sector with 20%, fertiliser with 17%, captive power with 10%, industrial sector with 9%, transport with 5%, and the commercial sector taking up the smallest slice with a 2% share. Meanwhile, as domestic gas production falls, things turn in favour of LNG, which is the cheapest and simplest imported gas available. In fact, according to an article published in The News, LNG has saved the country $5 billion after it substituted the expensive furnace oil. Over 19 megatons of LNG was imported since 2015, resulting in import bill savings worth 2% of gross domestic product (GDP, or the total size of the economy). And while there had been detractors in the Senate Energy Subcommittee who had raised concerns over having no lower or upper limit in Pakistan’s long-term LNG supply agreements, that arrangement is now proving to be beneficial. On the domestic gas front, production continues to decline, at least in part due to the fact that the government controls pricing, even as the industry relies on equipment and costs that are often globally set, meaning there can be a strong disincentive to invest in domestic natural gas production. It is important to remember that gas pricing for producers in Pakistan has not
been a stable business. Back in the 1950s and 1960s, prices were determined on a cost-plus basis. Since 1985, wellhead gas pricing has been revised intermittently and is linked to a reference of crude or fuel oil price taken from a basket of imported Arabian crude oil during the last six months. Through the 2012 Petroleum Exploration and Production Policy, the government has also placed an upper cap on prices received by producers in operation in the form of an S-curve, specifying both a floor and ceiling. Under the policy, the government set wellhead gas price in Zone-III at $6 per million British thermal units (mmbtu), $6.30 in Zone-II, and $6.60 in Zone-I. The Petroleum Policy also provides a comprehensive pricing mechanism for offshore zones: Zone 0, for example, has been set at $7 per mmbtu for shallow, $8 for deep, and $9 for ultra-deep exploration with other incentives. However, prices are different for each of the 55 gas fields, since they are set by the petroleum policy applicable at the time when they were discovered. So, for example, Mari provided the government with the lowest price for its field located in the 1950’s at around $1.40 per mmbtu compared to the 2012 pricing policy, which has set it to about $5.70 per mmbtu. Its gas purchase agreement also allows a minimum return on equity of 30% net of taxes on shareholder’s funds. In July 2018, OGRA increased wellhead prices in a 30% adjustment. Pakistan’s current wellhead gas prices are at $3.50 per mmbtu on average, which is 10% higher than those in India and almost double the prices in Bangladesh. Locally produced gas prices in India are $3.23 per mmBtu, which were as low as $1.50 in 2017. Bangladesh’s wellhead prices have varied between $1.60 and $2.80 per mmbtu, but saw an upwards spike when they also recently increased gas prices by 34%. Well-head prices for producers, of course, rely in large part on what the govern-
ment allows gas distribution companies to charge the end consumers. On that front, the government weighs a combination of factors, including incentives to industrial consumers of natural gas, as well as political considerations in ensuring that household consumers have access to cheap fuel. Bangladesh’s gas prices are the lowest in the world. Of special significance is the 37.6% rise in industrial tariff from $2.66 to $3.66 per mmbtu. Its industrial tariff is $3.66 per mmbtu as compared to $4.01 in the United States; the latter is perhaps one of the cheapest gas producers in the world due to its shale resources. Pakistan’s industrial gas tariff at $7 per mmbtu is comparable to or slightly lower than that of many countries in Europe and Asia. A special tariff for export-oriented, tax-exempt industries (textile, leather etc) has been kept at Rs786 ($5.24) per mmbtu. Domestic sector gas tariff in India and Bangladesh is $10 and $4.25 respectively, while in Pakistan, $10 per mmbtu is the highest slab. OGRA had decided to increase gas price in January 2020 for domestic household gas consumers by 191%, for the fertilizer sector 135%, 31% for consumers falling under the category of roti tandoor, commercial, industrial, zero-rated export industry, captive power plants, compressed natural gas (CNG), cement and power plants. However, after complaints from literally all of these consumers facing huge losses, the government put the scheduled increase on hold for six months. The alternative, if the prices had gone up of course, would have been LNG. It is estimated that at an oil price of $5055 per barrel, contracted LNG arrives at a cost lower than domestic price benchmarks. With all this going on, there is also an opportunity in the supply chain situation as well. Goldman Sachs, the global investment bank, stated in a research report in March 2020, that the bearish cycle might end in 2021
ANALYSIS
due to lower production in Europe and in the United States. This, along with higher LNG purchases, would help tighten up the market, with some analysts forecasting prices in the winter of 2020-21 to be at $5.80 per mmbtu, and at an even lower $5.50 per mmbtu in summer 2021. There is also some misrepresentation of the prices other countries in the region are paying for LNG imports from Qatar. The numbers quoted by people who suggest this are not true: Pakistan continues to buy LNG at competitive rates, and while India may have secured a few shipments are favourable prices, Pakistan’s longer term contracts are likely to result in favourable rates over the next few months, particularly as the benchmark Brent crude price has fallen from a rolling three-month average of $63.76 in January, to $50.97 in March, and is now down to $33.89 per barrel. That price of oil has an effect on LNG import prices, which are benchmarked to oil prices. The eight cargoes Pakistan is importing from Gunvor, QGas and ENI will soon be at an average price of $3.2 per mmbtu (benchmarked to 12.97% of Brent oil prices of around $30 per barrel) which could decrease to $3.04 per mmbtu if Pakistan was also to buy 4 additional cargoes at future spot price of LNG of $3.3 per mmbtu (benchmarked to 10% of Brent crude prices of $30 a barrel); thereby saving the country approximately $200 million per year in LNG terminal charges.
Coronavirus impact
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hile spot prices have gained slightly, they are still trading at their lowest for this time of the year. They fell to a record low last month as the coronavirus outbreak dented industrial gas demand from China, the world’s second-largest LNG buyer. While more businesses have reopened in China in recent
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“US LNG projects selling on a Henry Hub-plus basis will also be perceived as less competitive than oil-indexed LNG,” he claims. “As a result, there will be fewer LNG projects taking FID in 2020 and 2021” Giles Ferrer, research director at Wood Mackenzie weeks, analysts do not expect activity to return to normal levels for some time yet with how the Covid-19 pandemic is turning out. According to Giles Farrer, research director at Wood Mackenzie, a leading energy consulting firm, the forward curves for prices suggest that there might be some shut-ins of LNG, although this may not necessarily be from the United States. “US LNG projects selling on a Henry Hub-plus basis will also be perceived as less competitive than oil-indexed LNG,” he claims. “As a result, there will be fewer LNG projects taking FID in 2020 and 2021.” Put in layman’s terms: US natural gas prices are the only major market in the world that are not linked to global oil prices, and will thus not see as steep a decline in prices compared to LNG from other parts of the world, which will see a decline in prices due to the sharp drop off in oil prices. LNG export terminal projects in Mozambique, Mauritania, Senegal, and Australasia
will also come under pressure, translating into lower global supply between 2024 and 2027. By contrast, Qatar, with low fiscal breakevens and an ambition to grow LNG market share over the long term, is expected to continue to push forwards with its North Field expansion plans. The news about LNG shipping in April is that LNG suppliers are currently flooding the market with excess spot cargoes, generating fresh price problems, as demand dwindles globally due to the coronavirus outbreak. And with major buyers such as India, Italy, and Spain, among the worst hit, things are looking a little bleak. Total LNG deliveries to Europe are expected to reach nearly 11 million tonnes, a 14% hike from the previous record set in December, according to IHS Markit, which said the supply push comes as gas demand is collapsing at double digit rates. “Asian buyers are reselling volumes purchased from the US and portfolio sellers are offloading their excess cargoes as well,” says Michael Stoppard, IHS Markit chief strategist for global gas in a media interview. Given the uncertainty, LNG buyers in North Asia had opted for a ‘downward quantity tolerance’ (DQT) when negotiating their annual delivery programmes. Some buyers are now exercising the clause that allows them to cut volumes by up to 10%. “We’re seeing more sell tenders these days due to a combination of factors like coronavirus and DQT, but this also means that when demand rebounds, buyers will return to the market to seek spot cargoes,” a Singapore-based LNG trader said. One gas trader in Spain said everyone was using all the flexibility available in contracts during this
time. “If a contract is not in the money and has downward flexibility, everyone is doing it in whatever they can: cancelling a cargo, cancelling volume within a system,” they said. “Right now, if we could cancel, depending on the contract, we would cancel everything.” Last week, Qatargas approached buyers in Asia and Europe to offer cargoes for delivery or loading in April, sources said. Traders said it had likely been forced to seek buyers for its excess cargoes after being issued with a force majeure notice by Petronet LNG. Qatar is India’s biggest LNG supplier. Cheniere Energy, the largest US LNG exporter, also offered a cargo for loading in early April from Sabine Pass, which traders claimed was unusual. In Australia, Malaysia’s Petronas offered a cargo for loading in May from the Gladstone plant in which it has an equity stake, likely due to a cancellation from a buyer, an industry source said.
Where does Pakistan stand?
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o why is Pakistan lagging in taking advantage of the global gas glut when gas was selling in the future at $2.50 per mmbtu and now at $3.4 per mmbtu. Other price-conscious buyers are already taking advantage of record low prices and soaking up some of the excess supply. The window may be short, as short-term demand for LNG has improved over the past month, so now is the time to move if there ever was. India’s Torrent Power sought a cargo for early May, Gujarat State Petroleum Corporation (GSPC) sought 11 cargoes for delivery over April to March, next year and Gail may also issue a swap tender offering cargoes from Cove Point in the United States and seeking cargoes for delivery into India. Chinese utility Guangdong Energy group was also seeking five cargoes for delivery over April to December whereas Turkey’s EgeGaz also sought two cargoes for delivery in April and June. Still, supplies are ample as cargoes were offered in the spot market. Angola LNG offered a cargo for delivery in April to as far as India while Oman LNG offered three cargoes for delivery over March, June and July. Currently, Pakistan has the ability to buy four cargoes on spot prices every month as spare terminal capacity is available and should do so. But then where is this inaction coming from? The order for the additional four cargoes needed to be placed with measures ensuring LNG utilisation despite lack of demand due to the economic downturn. This could realistically have been achieved through the enforcement of utilisation of LNG in the power sector, especially considering the sector used under 140 million cubic feet per day (mmcfd) in the first week of
“Asian buyers are reselling volumes purchased from the US and portfolio sellers are offloading their excess cargoes as well” Michael Stoppard, chief strategist for global gas at IHS Markit
March, despite the demand being 240 mmcfd. Sui Northern Gas Pipelines (SNGP) should also be busy securing additional customers, providing LNG to export industries and CNG, while the energy ministry should be reviewing indigenous gas production (average price proposed by OGRA at Rs707 to 785 per mmbtu), and deferring cargoes of long term contracts if beneficial. They should also have their hands full reviewing tenders or reopening signed sales agreements, if deemed prudent. All of this would help achieve desirable results, especially if these actions had been undertaken with the utmost professionalism and good faith. The problem is, that the oversupply period will not last long, and will be back to normal as soon as the world GDP improves. The pandemic impact on the economy of China is already reducing and the Russia-Saudi Arabia oil turmoil has ended. Meanwhile Pakistan has opted to defer two cargoes but probably should do two more soon.
What can be done?
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here are, however, some options to further reduce gas volumes and benefit from the lower cost of oil. For now, PetroChina has already invoked force majeure in its long term contracts and refused shipments. The combination of falling economic activities, a Northern hemisphere warm winter, and now the coronavirus effect, are all making the LNG supply situation and the pricing of LNG under long term agreements more critical. However, the Pakistani government seems uninterested in invoking force majeure The tsunami of new LNG production now hitting the market mainly from the US, Australia and Russia is unprecedented. LNG sellers and buyers need to sit down together to analyse the LNG import agreements having an indexed price, and work out a solution. If the parties to the long-term LNG sales and purchase agreement (SPA) are unable to find a solution, then they should seek independent professional help. The European gas industry went through a similar problem a decade ago and might be an
example to learn from. Depending upon the governing law and upon the specific terms used, there are potentially good arguments for both the Covid-19 event being effective as a reason to excuse or suspend performance [based on force majeure] and, also, for it not being a strong claim. However, both buyers and sellers need to tread very carefully. If a buyer is allowed to claim hardship under an SPA and is also able to demonstrate to a court that they are suffering hardship as a result of the pandemic, then a judge acting under English law has in court has the power to annul the SPA. Pakistan has seen a lower demand due to the economic downturn. In addition to this, the country can legitimately claim that it has shut down its ports because of fear that keeping them open would help spread the virus. In addition, terminal capacity should be allocated on “use it or lose it” basis and not monopolised by traders as is happening presently. The two terminal operators – Engro Elengy and Pakistan GasPort – are allocating capacity to only Shell and Trafigura. This is anti-competitive and will not develop imports by the private sector. The government of Pakistan is now considering taking over the PGPL terminal, assigning a new operator, or settling the penalty and other contractual matters. If it does take over GasPort, then the Sui Southern Gas Company (SSGC) and GasPort terminals could be operated as merchant terminals, freely available to anyone who wants to use them. Ultimately, however, the big fix that is needed is in the gas prices charged to consumers. There needs to be a single gas price charged to all consumers and then any households that cannot afford gas should be subsidised through cash transfer programs like the Benazir Income Support Program (BISP). n Sheikh Imranul Haque is a former energy executive with decades of experience in the industry, including stints as CEO of Engro Elengy and and Managing Director of Pakistan State Oil
ANALYSIS
OPINION
Sirajuddin Aziz
Hoarding, for example, is very obviously immoral. There are no two ways about it. Yet hoarding is a casual enough practice, and one that threatens more than ever with a pandemic looming. And that is precisely the point of talking about morality in business. Hoarding as a concept is the accumulation of a commodity or produce, with ill intentions. The ill inHoarding has been a problem in Pakistan for tention in question is that someday the demand for the product will outstrip supply, leaving the hoarder with a long, and in the world for longer. But reflecting vast repository to sell to the highest bidder. on right and wrong might be what is necessary The hoarder will justify this action to their own to fight this evil conscience by saying it makes logical economic and business sense since price is driven by demand. What could be immoral about that? After all, in a buyer’s market,the supplier is entitled to ask for any price. his piece will be naturally disappointing. For starters, Governments, foolishly enough and especially in if you came here thinking this is the ammoralist’s guide the developing countries, believe that they control pricto the immoral business, it is not, quite the opposite in es. And while official price lists are religiously displayed fact. Far from being a hack to figuring out the lucrative in every shop, they are little more than a showpiece business of immorality, this is going to be one of those when the actual sale is made. Officials deployed to monprincipled articles about doing the right thing. itor adherence to the price list easily end up as cohorts. Believe it or not, there are still people and busiWhere that leaves us is a situation where businesses nesses that believe in lofty concepts such as nobility, national identity and can justify hoarding to their own sensibilities and easily integrity. And for those that still hold these concepts close to heart, it is be able to do it because of slipping regulation standards. important to talk about what we mean by immorality and business ethics. So why wouldn’t they? Especially when it is sanctioned Because this isn’t about legality, but about principle. by officials in every way but officially. To kick things off, it should be clear that an immoral business is It takes two to tango, and immorality in any socinot merely one that is considered taboo. Brothels and speakeasies are ety is possible only through abetment and partnership. usually where our definitions of immoral businesses begin and end. And An individual, per se, cannot be immoral in isolation, while judging the morality of a business by religious or social customs is they need a partner in crime. And to our collective misa separate debate, in purely economic terms, an immoral business is one fortune, partners in crime are a dime a dozen. with any negative motives, or one that harbours people that intend to The way hoarding becomes a duo job is that knowingly or unknowingly harm society. the manufacturers and producers find themselves in cahoots. They first vitiate the production lines and then the supply chain, to push prices upwards. All of this, of course, happens off the books. And to make themselves feel better, and perhaps a little dangerous and sexy in the process, these hoarders, society and Sirajuddin Aziz regulators refer to these actions as “cartelisation.” But that does not change the fact that it is a is a freelance columnist simple case of hoarding. who has had an extensive Not only do corporations depend on forming cartels. And of course, why would this not career in banking, including happen on a small level when it is the way of the world? What is OPEC after all? For all intents serving as the CEO of and purposes, it is a legal charter for the blatantly immoral purpose of regulating the pumping of Bank Alfalah and Habib oil to ensure price stability that suits producers. Simultaneously, they hold great power by being Metropolitan Bank able to cause havoc and upheaval in world markets by cutting back production.
Let’s talk immorality and business
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Much like this global example, the construction industry’s cartelisation in our country is well known to all. They operate under the wilfully ignorant eyes of the regulators, and are only occasionally given a slap on the wrist. This hoarding has more serious faces too. For example, if the product being hoarded is medicine, particularly life saving drugs, then it is a question of legality as much as it is of morality. When medicines are hoarded, that is when immorality is at its zenith in society and business, and we have unfortunately reached that unsettling milestone. A friend of mine is excessively prone to anxiety and panic attacks. The friend has been prescribed by a known physician a drug, whose main ingredients are combinations from the family of benzodiazepines, and this drug is produced by a multi- national company. This drug he mentions is perennially kept in short supply, due to undeclared collaboration between distributors and pharmacies. The objective is obvious, to keep low supply and charge sky high prices.The official price printed is less than PKR 500/- for a box of three
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strips, but because of the excellent relations, my friend enjoys with an unqualified, self styled, pharmacist, he is able to get his medicines for a significantly lower PKR 3000- 3500. One can only imagine how hard battling something like mental illness is without having to worry about exploitative drug prices. One of the worst kinds of hoarding at the best of times is grains, vegetables, and meats, and will be especially felt in the current scenario..Any gains from this must be nauseating to a human with a live soul. But the fact that nobody is throwing up, means, at least, the soul has taken a flight to its noble Origin and End. No gains satiate the greed of hoarders. And if a plea to humanity does not work, perhaps one citing God might just. I would remind hoarder that it is with deep anguish and consternation that I have restrained myself from quoting the Quran and the many injunctions on hoarding and hoarders, mentioned therein. All things thus considered, is it then moral for businesses to take future contracts for making profits, and then to ask for relief for the losses, due to price movements? It is a cause
of anguish when a wrong business decision is compensated by taxpayers. Even seemingly simple things like lawn clothes, there is an element of hoarding for the in- print material. The most exquisite prints are either reserved for the privileged at the stated price or are sold at skyrocketing prices to those who are not connected with the owner/ shopkeeper. Isn’t this also hoarding? And doesn’t that make it immoral? We, as a society, are possessed by the demon of greediness, and have lost the tastefulness of life. Greed is a compound of all evils. In this time of pandemic that we are wading through, some have made handsome profits by black marketing hoarded sanitisers, tissue paper boxes, toilet rolls, masks, surgical gloves, etc. Shockingly, I read that in the small city of Haiel, in Saudi Arabia, a shop was raided and the authorities recovered masks, numbering 1.7 million. That number in a single shop! At the same time, consumers have been no better, panic buying and hoarding far more than they need. It seems there is no shortage of partners in crime, and no realisation of the crime either. n
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