Running Scared

I remember a time when in India a person had to wait eleven years before they could take delivery of a Bajaj scooter under the Indira Gandhi government. Things have changed to a great extent over there and there is no reason why this cannot happen in Pakistan. Both countries trade indirectly through middlemen based in Dubai when they could do business directly and make a huge amount of money for their own people without it being parked in an Arab country. The Arabs have enough money of their own anyway...

It is good that good people in Pakistan are questioning the business system. There are bound to be entrepreneurs considering the numbers of well educated Pakistanis whom I see in the US and Canada on a regualr basis. Hopefully, prosperity would come to all as business grows within Pakistan and also outside.

tehsah #27:``Very revealing indeed! But what you mean by military budget in the accounts of Askari Bank? Do you mean all the funds allotted to `defence` are transferred to that bank.``

Askari Bank has a serving Lt. Gen. as the head of its Board of Directors. It also has a group of retired Army officers as its board members. The administration of the bank, however, is fully civilian. It is one of the few entities owned by Army`s civilian business arms that is running well (primarily because it has gauranteed deposites). The rest are running better than they would be had they been headed by a corrupt man like Zardari. But not running as well as they would be had they been run by professional businessmen........

Askari Bank runs well, because it has to take no risks, i.e. business financing etc. It basically has access to the military`s accounts. I don`t know what portion of the military budget goes there. But the military accounts are what it runs on........

Re: # 24

Romair

``So the largest govt. owned entity in the country could be sold by the govt. to its own Army. The Army will obviously need to get a loan to buy this company, which it can conveniently take from its own Askari Bank. The bank can take a risk, because it always remains profitable because it has in its accounts the military budget !!``

Very revealing indeed! But what you mean by military budget in the accounts of Askari Bank? Do you mean all the funds allotted to `defence` are transferred to that bank.

You have perhaps forgot our `nuclear business` which appear nowhere in our accounts?

And what about the `heroine business`! Is it still in the civilian hands?

I like your article. I hope somebody takes notice. In fairness, though, EVERY country (including the U.S.) engages in a certain degree of protective measures – to tend to domestic “vote banks” (which can be commercial entities or regional segments of population), usually for the short-term only, and only if it does not attract too much “attention”. Its domestic equivalent, of course, is known by the term “pork-barrel” (welfare projects targeted to benefit specific segments of population, and mostly those segments only – the way I understand it).

[``What about all the jobs we provide?``]
As the author perhaps recognizes – this is one of the lamest excuse (next to jingoism) for protecting an inefficient domestic industry. The only jobs worth saving, in any country, are those which result in real service (directly or indirectly) to the consumer – all else represent a contrivance of some kind solely made up to fleece the consumer – and to demean the holder of such a “job”, to stop them from using their real creative potential, and to turn them into mindless cogwheels! Communist regimes exceled at that.

[The recent ``quarantine`` of Indian potatoes is another case in point.
Are the mandarins in Islamabad really that balmy,…]
We ARE talking potato heads, aren’t we!

[Several proposals have been sent to the Ministry of Health to allow the import of generic life-saving drugs from India, which cost a fraction of what branded ones do. In a poor country like Pakistan it is criminal that people have to dole out so much money for medicines when they can access cheaper drugs.]
There exists a similar issue with respect to Canadian drugs – in the U.S.

[The cardinal rule … in Pakistan it is ``survival of the fattest -- and the most connected.``]
It did not work for premier Jamali, though! (I don’t know the strength of his connections but he did not come up short on the first count, anyway.)

#7 Omar
I don’t think the math is that simple! For one thing, paying up-front ensures against a price rise during the waiting period. The payment of a “premium” is a well-established practice in many business transactions – including real estate – where the demand exceeds the supply. The REAL issue (as this author pointed out) is artificially creating demand by restricting competition.

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P.S to previous: Far large than any of these business groups is the Pakistan Army, which is the largest coroparate entity in Pakistan. It owns, through its civilian corporate and welfare arms - Fauji Foundation and Army Welfare Trust - :

- the largest housing society in Pakistan; Defence Housing Society - larger than even Bahria Town.
- the largest logsitic company in Pakistan - National Logistic Cell.
- the largest fertilizer company; fauji fertilizer and Fauji Jordan
- the largest cereal company (?) - Fauji Corn Flakes
- the largest Construction Company - Frontier Works Organization
- Three Sugar Mills
- One of the ten largest banks (Askari Bank)
- A software company (Askari Computers)

There isn`t enough room here to list the other companies the Army owns. But they are in the areas of Cement, Oil, Gas, Power, Corn, Polypropalene (whatever the hell that is), insurance, pharmeceuticals etc. etc.

It has now even bid for the largest (?) and most profitable govt. owned entity in Pakistan - Pakistan State Oil. This could be the biggest or second biggest privitization (?) in Pakistan`s history. It has revenuens of $2.5 billion and owns 85% of Pakistan`s fuel oil market...........

So the largest govt. owned entity in the country could be sold by the govt. to its own Army. The Army will obviously need to get a loan to buy this company, which it can conveniently take from its own Askari Bank. The bank can take a risk, because it always remains profitable because it has in its accounts the military budget !!

This should give you an idea on why Generals, as a group - even well meaning, honest and patriotic ones like Musharraf - want to make sure the politicians remain in their control.......

Anil #various: Following is a link you may be interested in. It doesn`t have much to do with the discussion we are having. But if you are interested in the Pakistani business houses, it will give you some info.............The biggest business house in Pakistan used to be Ittefaq Group, owned by Nawaz Sharif and family. This is why his family got into politics. They realized they had to do so to protect their business interests. His father and uncles, were dirt poor, and started off as brick kiln workers........

The biggest Pakistani business families seem to come from Chiniot, Punjab and the memon community, Karachi (for some reason)

http://presidentofpakistan.gov.pk/CelebratedPakistanis.aspx

Now the biggest business house is Nishat Group, run by a guy name Mian Mansha. They own Muslim Commercial Bank, and almost bought United Bank; amongst other things. Bahrian Town is 31st on the list. However, it must be quite a bit higher now, due to the real estate boom.

If you notice, these groups were nationalized by Bhutto in early 70s. That act killed Pakistan`s economic growth, which at that time was ahead of Turkey, Malaysia etc. It would be the equivalent of the Communists taking over India, and nationalizing Wipro, Reliance, Tata, Infosys etc.; thereby killing them in their prime. Otherwise some of these groups may have been gigantic, if they had continued growing as private companies from 1970 till today.

Only now are the getting back to their growth rates of the 60s........

Anil# 21: ``This is not sustainable growth rate, but a spurt because of pent up demand.``

Following is the company by company breakdown, by Feb 1, 2005 (8.5 million):

Mobilink’s 5.329 million
Ufone 1.959 million,
Paktel 0.621 million
Instaphone’s 0.570 million

It has now crossed ten million. Maybe the numbers are all false. Maybe it is just 1 million. I didn`t count them. I can just give you the info that is being published. But two new company`s have just gotten licenses to operate in Pakistan- Telnor and Al-Warid, from Norway and Egypt, respectively. They paid $300 million dollar each, for the licenses.

1. You are correct in stating that all of these are spurts, from pent-up demands. And they cannot be sustained. How could such high growth rates be sustained in any country? I, myself, mentioned it. And everyone in Pakistan recognizes it. Which is why PTCL was valued at $10 billion, and not at $100 billion.

But the fact is that the growth has occured. And is occuring. It won`t be at these same levels, obviously, forever. In telecommunications, foreign companies have come in, in a big way, and put in a lot of money. Those that got in early (five to ten years ago), have benefitted hugely from this spurt. Just like those that got in early into the auto growth are making a killing.

Similarly, the stock market was one of the fastest (maybe the fastest) growing in the world for five years. Those that got in early, made a killing. It crashed somewhat, but seems to have stabilized around 7300+.

``I also read your comment on $11B investment. You might like to review project financing and corporate financing papers to understand the details of the relationship I mentioned.``

2. Regarding, real estate, all I know is that Bahria Town has signed this deal with Malaysia. I don`t know how, and under which economic formula, but they did. Maybe it is a fake deal, and will fall apart shortly. But I have seen the very nice housing societies, everywhere that they have built. And people are buying them up like hotcakes, at very high prices. There were huge riots, to get their applicaiton forms. All my friends who bought an odd plot there, years ago, are now quite well off..........Consideirng the fact that houses in Islamabad are running, on average, between 1-6 crores today, and they are building a 50,000 acre city in that area, one would have to assume, it would be in billions of dollars.........

I think there is a lot of undocumented drug money in Pakistan. All these drug lords in Afghanistan obviously don`t spend it in Afghanistan. It all ends up in Pakistan and into the real estate, and into the people`s pockets. Also, a lot of undocumented money comes in from the Middle East, straight to the poor class. Perhaps now it is being invested. Which is why the govt. is always poor, but the people seem alright (by South Asian standards). There is no one sleeping on the streets etc.

The software sector is one area that is still very depressed. It is tiny. The largest companies would probably be valued at a few million (compared to $10 billion for PTCL). Equal to ten to twenty houses in Islamabad. The largest software VC fund in Pakistan has only $6.5 million to give away. The combined prices of five to ten houses next to where my father lives is about that much.

Software people in Pakistan don`t have a good business model to follow yet. Which is why I think there is a lot of pent-up spurt growth possibility there. Much like there was in some other sectors, five years ago. The govt. and private companies have money to spend on software but cannot get their projects done..........

We can discuss this in detail at a later date, in person. Your experience in analysing this area is far better than mine. However, whatever I am highlighting has happened and is happening. Consider it a layperson`s analysis who has access to a lot of accurate facts and figures.

You should try to make a trip to Pakistan. I have always been convinced that all Indians have this virtual picture of Pakistan, which changes when they see it, for themselves........

Re: # 18

Romair:

``http://www.jang.com.pk/thenews/may2005-daily/18-05-2005/business/b4.htm``

Thanks, and I read the link that you had sent, it show 9% month to month growth over the last 11 months, which is a very short term growth, and confirms my suspecion. This is not sustainable growth rate, but a spurt because of pent up demand. Realistic maximum market size for cell phones in Pakistan would be maximum of one phone per person above 20+ age group among affulent, and then penetration will dramatically go down from there on. After fifteen years of sustained growth the penetration in China is between 200 - 300 million. One of my Pakistan friend in venture capital community in Silicon Valley and I had looked at the Cellular Phone market opportunity in Pakistan about two years ago, and that is why I was surprised to see 110% growth number. In any case C.A.G.R. (Compunded Annual Growth Rate) is not determined the way this over enthusiastic reporter has done.

I also read your comment on $11B investment. You might like to review project financing and corporate financing papers to understand the details of the relationship I mentioned. On both counts I standby my statements.

Cheers.

Hamidm#11: ``for those of us who don`t want to get our statistics from romair mian, our exuberant cheer leader (kind of like shaikh chilli ) and prolix mr knowitall, here is a much better source :........Business Recorder``

Hamidm mian, I can understand when many of our non-Pakistani colleagues get apprehensive and dejected, if someone points out that the Pakistani economy is growing. But why does it bother you so much :-) I am truly starting to doubt whether you have any proud Pathan genes in you, as you claim. I am getting the feeling your grandfather was a fake Pathan, not a genuine one...........

Which one of my statistics is inaccurate? Haven`t all your uncles and cousins (and perhaps father?) who are/were generals and air marshalls in the military become multi-millionaires, through the plots they owned? Doesn`t your cousin, who was a retired Major, living shabbily in a tiny house in a corner of Lahore, all of sudden own a new Mehran car, now that his tiny house is worth 70 lakhs? Isn`t the one kanal plot, your dad left for you in Lahore, that he got from the Defence Housing Society, worth more than the money you made in the past ten years as a Consultant in Chicago?.........Haven`t you been thinking about buying a plot in Bahria Town, so you can retire in Pakistan, like a tycoon, now that USA is becoming a bit uncomfortable after 9/11?

I actually read a lot in this area, since I have no expertise in it, myself. And Business Recorder is something I read everyday. Much of what I am saying is coming from there........Here are some more sources:

www.bluechipmag.com
http://www.sbp.org.pk/
www.pakistaneconomist.com

As well as the World Bank, Asian Development Bank etc. sources..........Even people who hate Musharraf have recognized the economic turnaround..........

Have some faith. All Pakistanis aren`t like the odd crowd you hand around with in Chicago`s various mosques. There are some pretty sensible ones also, who are at the moment running Pakistan`s financial insitutions and economy. Give them some credit.......

Patwari #15: ``Romair I may agree with you that Pakistani economy growing but sir how can you say that number of poor decreasing because it is actually other way round...but that is how modern systems of so called economic growth work.``

I am basing these on analyses by prominent economist Shahid Javed Burki. His articles are on Dawn, every Tuesday. He analysed that last year was the first year, after about 15 years that the number of poor decreased (by 5 million). Uptil that point he had been writing, every year, that it was increasing. He feels the economy has now fully turned around, and poverty should continue to decrease..........

Everything I am writing is based on analyses of such people, which I follow regularly. I am no economist, myself. But when an economy grows at very high levels, more jobs are created, and the money gets distributed, and the number of poor decreases......The distribution of money is not happening at the speed it should, but it is still happening..........

The govts. target for this year is 7%. Which means the number of poor will decrease again......

Anil #13: ``Cell Phones ...... ``was at 3.3. million by the end of 2003. At 7.5 million in 2004. And has now crossed 10 million. This market is growing at 110% annually. ......means in little over three years there will be cell phones than Pakistanis.``

I am surprised a person of your business experience would make such a comment :-)

1. Cell phone growth has been at this %. You can check out the statistics available. This is the number of SIMs (connections). Not the number of users, which could be half that much. It obviously will not remain growing at this percentage. Much like the growth of start-up companies can be 100% or more, in the begining. But as they get larger, the % growth slows down. For the past five years, cell phone growth has been 110%. Similarly, the auto industry is not going to continue to grow at 32%. Otherwise, every Pakistani would have to have three cars in 15 years. As it gets larger, it will obviously slow down. As will the banks. This is true for Indian companies, as well (Wipro will become bigger than the whole world, if it continues to grow at its current % for thirty years). Or companies anywhere in the world...........

Please check out the following article, for cell phone figures: http://www.jang.com.pk/thenews/may2005-daily/18-05-2005/business/b4.htm

2. ``This single real estate deal at $11 Billion is about 12% of Pakistan`s economy. For such a deal to be credible cannot be no more than 10% of the company`s current revenue. Is there any company in Pakistan big enough to have $110 Billion annual revenues? ``

This one I am just quoting from what the owners of the companies are saying. I don`t know much about this area. What I do know is that nearly all the money in Pakistan goes into real estate. Average sized houses in Islamabad are now in the range of 2-5 crore ruppees. Houses in Lahore and Karachi (and probably Peshawar) are worth a fortune also. Much of this could be the drug money that illegally, but regularly comes in from Afghanistan, for investment. Also a lot of money from the Middle East comes in illegally. The govt. has no record of either of these. Following is some information on Bahria Town, from its owner, and the deal it has signed:

``The Housing Industry is the largest industry of Pakistan. Pakistan is one of the 20 countries of the world where Real Estate business is on top of the list. According to unofficial figures, the turnover of just six housing projects in Pakistan is equal to the annual budget of the country. Recently, for example, the CDA sold two big plots in Islamabad for Rs 12.96 billion at Rs 121.8 million per kanal. To judge the depth of this deal one has to look at the second largest bank of Pakistan viz Habib Bank. It has 1,460 branches all over the country and is operating in125 countries of the world. The bank earns Rs 5 billion profit every year. Last year when it was privatized, it sold for Rs 22 billion only. Only two plots sold by the CDA fetched 60 percent of that amount.

In March 2005, our Bahria Town entered into an agreement with two large consortiums of Malaysia viz TAK and MAX Corp for the following projects worth $11 billion: Phase 7 & 8 of Bahria Town, Rawalpindi; Margalla City on 50,000 acres at Margalla Hills; Bahria Golf City on Expressway; 300 flats in Rawalpindi; 38-storeyed Tower for Bahria Town City Centre according to Dubai design; 60-storey building at Clifton, Karachi. `` (www.dailytimes.com.pk)

India`s GDP (actual) is about $750 billion and Pakistan`s is about $91 billion, acc. to IMF.I`m not comparing the two.This is after all an Indo-Pak forum, for the most part!!.

Romair I may agree with you that Pakistani economy growing but sir how can you say that number of poor decreasing because it is actually other way round...but that is how modern systems of so called economic growth work.

Re: # 10 Omair I resent that comment about houses in Karachi and Lahore..I have a place in peshawar!..Anyway Pakistan has traditionally on two cardinal rules..the rich get richer..the powerful get more power..breaking open these monopolies is the key