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Friday, 24 May 2013 1:29 am
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Profit Column
Zong and Manchester Unite(d)
Zong has pulled a rabbit, a rhinoceros and an illustrious elephant out of the proverbial hat owing to its collaboration with Manchester United and the launch of the ‘SIM of Champions’. To round off this groundbreaking deal, the telecom company has recently launched an electronic advertisement, which is reminiscent of the Pepsi ads of the days of Inzi and Wasim bhai. Street cricket is replaced by street football, and you have a bunch of bullies overpowering the underdogs before the heroes come and save the day. The setting has been made to resemble a Pakistani street, with a Jalaibi stall, ‘Rehmat Bakers and Café’ et al; however, the yellow cab parked in front of Rehmat Bakery doesn’t border on any of the taxis from our neck of the woods. And then you have some Spanish music in the background for some bizarrely inexplicable reason as well. Quite stereotypical, full of clichés and yet the project is undoubtedly destined to gatecrash into a goldmine.
Ever since ESPN and Star Sports started their coverage of English football in the 90s, the popularity of the sport and indeed the English Premier League has been on perpetual escalation in the subcontinent. From the days of Cantona, Bergkamp, McManaman to the era of Beckham, Henry and Zola, and recently the likes of Ronaldo, Rooney, Gerrard and Lampard; English Premier League stars have become household names, and one regularly sees youngsters donning the jerseys of their favourite EPL teams in Pakistan. And again, since Manchester United have the biggest fan base in Pakistan – much like most parts of the world – Zong’s customer base is set to skyrocket.
Zong’s SIM of Champions – with the 311 number series – includes offers like “Follow the Star” where one gets updates regarding one’s favourite player, and then you have goal updates, scores, interviews, videos and what not! There are also ring tones that have the voice of your preferred players, one gets the chance to ask questions from personnel associated with the club from Old Trafford among many other exciting offers. I mean, if I were one of the Red Devil brigade I would be hankering after the chance of getting my hands on this little chip sent from the footballing gods. And considering the fact that football buffs nowadays are willing to throw just about any amount of their parents’ hard earned money in their never ending collection of goods related to their club – from washroom accessories to just about every part of clothing, and anything and everything in between – brace yourself for an upsurge of Zong connections in Pakistan.
All the same, in a classic case of Victorian irony, Zong’s lunge into the ‘Theatre of Dreams’ has coincided with one of the darkest hours for the club in recent memory. Zong’s announcement of the deal in October was almost immediately followed by the ‘Six and the City’ episode and a week before the advertisement came on air, Manchester United were dumped out of the Champions League! So, if you believe in omens, Zong hasn’t exactly been United’s lucky charm. While Thursday night Europa League workouts might not be the most lucrative of starts for the Zong-United combo, the popularity of Manchester United the club, and the brand doesn’t look like dipping any time soon.
Maybe other telecom companies should take a cue from Zong and target other famous English or European clubs. Showcasing Ashley Young’s picturesque chest control, Darren Fletcher’s goal celebration, an uncharacteristically unanimated Dimitar Berbatov and an overexcited Rio Ferdinand would work wonders for Zong’s sales; their rivals could do with a Van Persie volley or a Luis Suarez nutmeg of their own.
The writer is Sub-Editor,
Profit. He can be reached at khulduneshahid@gmail.com
The year that was
The economies around the world faced some indomitable challenges during the year 2011. The international economy had not yet recovered from the 2008 crisis of the US economy when the eurozone calamity struck this year. The domino effect was visibly there when the governments in Greece and later in Italy experienced changes in political governance. The European central bank decided to put some stringent fiscal measures for the individual economies to be careful in their public spending.
Things at home also passed through turmoil of economic issues that would have required some close attention and handling. We can partly explain the inflation factor due to problems in the international economy. But closure of train services and other utilities is totally unexplainable, grossly speaking of mismanagement at a massive scale. It is surprising that no effort was launched to streamline management. In these days of availability of valuable advice, it should be not be difficult to remedy the ills when things take a turn for the worse. I believe the time is still ripe for taking appropriate steps to setting the rail system in order. In these days of energy shortages it is the most convenient and affordable way of providing transport for passengers and carrying goods from and to the seaports.
The growth figure for the economy being just above two per cent was not very encouraging. Though non-developmental expenditure was somewhat controlled but management of the public sector required some adroit handling. There was never a strong point on our part for taking care of public-related institutions as they ought to be handled. Unfortunately mismanagement has taken root so strongly that it has become a cause of worry for the long-term goals of economic development. Socio-economic priorities are always pushed to the bottom to take care of immediate expediencies. That is not how businesses of the state or for that matter, private enterprises managed.
The matter of tackling issues of international trade and that of climate change remained mired in international negotiations. No further progress was made in the Doha round of trade talks or at the Durban summit on climate issues. Indigenously the matter of seeking to earn some extra foreign earnings from exports to Europe got linked up with granting MFN status to our neighbourly country. This was probably done in haste as no detailed study of extensive non-tariff barriers likely to be imposed by India was made before such a move. Textiles, pharmaceuticals and other exports by Pakistan to its neighbour are likely to face some formidable challenges before it can break in to that market. All steps must be taken to pursue the goal of achieving greater integration of the economies of the SAARC region but this must be done through careful negotiations by the respective partners.
It is important for Pakistan to seek greater economic cooperation with the fast changing Asian economies. Along with that other regions in the world must not be ignored. The sub-Saharan Africa is fast rising from its slumber and is expected to make some valuable progress in harnessing the abundant natural resources the countries of the region are endowed with. In a decade or so these economies shall be significant players in the African scene. It is important that our entrepreneurs be encouraged and facilitated to further enhance economic linkages not only in trade but also in establishing business houses and activity there.
As another year is coming to a close we can say and reflect it was indeed a microcosm of all the efforts that were made to tackle economic and historical developments during the last hundred years or so. It was a year that posed challenges to the international economy to save the important gains made by the world economy during the last century. Nearly most of the socio-economic progress is being jeopardised at least in the short term. The developed economies are desperately trying to deal with the rapidly deteriorating situation in the employment sector, maintaining sustainability of social benefits or provision of health and other similar benefits. The world economy is adjusting itself to new parameters that are being defined in this fast changing scenario of international economic activity. As the year 2012 is approaching we must ensure better governance in the future and awareness of the importance of socio-economic issues.
The writer has served as consultant to the United Nations on the issues of trade and development. He can be reached at amjadriazzz@yahoo.com
Spirit of capitalist recklessness
Humans love adrenalin. We like our cars fast, we like our planes faster, we love the thrill, we love how the heart beats against our chest, as we beat on carelessly against the currents. We are at heart wild animals captivated by the thrill of the hunt. And here’s where capitalism comes into play. Capitalism fuels that spirit of recklessness, the uncertainty of life, as we turn it into a poker game, placing our bets on the odd horse we think might win. While we might think we run the game, there are many variables at play, some of them not in our control. There is the odd probability that while we did bet on the glistening muscular Arabian horse in the races, the donkey might take the race for whatever reasons. We have in front of us the example of big organisations, massive in size and employees, stakeholders never thought the empires would ever collapse. But that’s the thing about adrenalin. One wrong move and ‘Poof’ you’re gone. Caput. The car smashes against the wall, and all you can do in that moment where you see the life slipping out of your hands is to pull up a silly face.
It’s funny how we react after the accident though. We get back into the car, it has the same horsepower, the same engine, everything is the same and the probability of you getting in the accident is perhaps similar, but then, we’re too afraid and we take it cautiously. We drive our cars hesitantly in the second gear, breaking a little harder than necessary, and a normal 12 hour destination at 80km an hour, then takes double the amount of time, because your moving in at 40km/hour.
Now, the thing is, let’s try to understand the analogy I’ve tried to present here. Imagine the car is the economy and you are the driver. In the absence of cops, or in the event that you’ve paid them off, you’d love to hit the paddle, to see how it accelerates. You whiz past the 120km mark and you’re tempted for some more, so you floor the paddle as everything blurs past you and your vehicle gain’s momentum. You feel your heart beating against your chest, you know, you’ll beat the rest, you’ll reach the destination sooner than anticipated and thoughts of a happy future occupy your mind. So, you’re cruising, at 180km/hour, loving the performance of your car, honking as you overtake the rest, and arrogantly wear your Ray Bans and just as you had thought of turning on the stereo a truck moves in your lane, it’s too late to stop the car. And, your car smashes into the rear of the truck as it throws you towards the windscreen, and it’s too late. You’d be lucky if you survive, and if you do, it’ll take some time for you to build your car.
Now strange enough, this is the thing about capitalism. You need to be careful and rein in your temptations. You need to ride smooth, and you’ll have a safe exit. If you try to outsmart yourself, the likelihood is you’ll crash. The global economic recession is one that can be attributed to the innate pride of human’s that they could test the limits of an engine that could only take you so far. Sooner rather than later, this had to happen. Which is why if you’re an investor how about you play it safe in the first place than jumping off a twenty story skyscraper because fate played it tough with you?
However reckless capitalism may sound there’s a reason it collapsed, and the reason is our inherent urge to fuel our adrenalin. Institutions and corporations need to play a greater role for the effective allocation of resources, and to resuscitate the economy all you need are safe drivers. A word of advice for the average joe? A favourite quote from a movie my son made me watch some time back, which goes something like this, ‘We're the middle children of history. No purpose or place. We have no Great War. No Great Depression. Our great war is a spiritual war. Our great depression is our lives. We've all been raised on television to believe that one day we'd all be millionaires, and movie gods, and rock stars, but we won't. And, we’re very very angry.”
Maybe, if we rein in the unscrupulous desires, we might reach the destination. We won’t end up millionaires, but we won’t end up losing everything we spent ages constructing.
The writer is chief manager SME bank and a seasoned banker with over 30 years of experience
Very visible ‘arms’ of the govt
In the recent episode of almighty IMF summoning esteemed members of the government, assurances were exchanged with respect to the restructuring of the Trading Corporation of Pakistan(TCP), Utility Stores Corporation and PASSCO. One proudly proclaims itself to be the trading arm of the government, based on which the remaining two can be extrapolated to be the “selling” and the “storing” arms of the government.
A recent controversy has dragged this troika into the writer’s notice. TCP’ recent cancellation of sugar tenders, based on the latter being quoted at a higher than market price, has come with a cost. If one were to believe the trading arm’s ‘feeling cheated’ sentiments, a fair view should also be taken of the losses sugar millers have had to incur. Given that the quoted price was around Rs66/kg and the prevailing market price was Rs59-62, the TCP has benefited from its own red tape and connivance by canceling the tender when the market price came down to Rs50/kg. The losses or foregone income of the millers on account of the sugar hold up ranges from Rs2.1-2.4 million. Conversely, this amount has been quoted in the defense of the government’s ‘business arm’ as the loss the national exchequer would have to incur had this transaction passed through.
At the outset, it just seems wrong for a government body to be calling itself a business arm as it completely and utterly trashes the entire concept of the public good. Simply put, the government should not be in the maximising profit game at all. And so this ‘public’ private limited company has been making profits close to Rs2 billion and above annually since FY-09. Given that their primary objective is to provide goods at affordable prices to the common man, regular profits imply that they have been buying at low prices and selling at higher.
And that is where the remaining arms come into play. One provides additional storage capacity where as the other serves as a retail outlet when prices are skyrocketing. And guess what, everyone goes home with some portion of the profit in their pocket. On the funding side, the affiliation with government comes in handy as credit is cheap and easy to obtain, as the former clearly offers a risk free window to invest in. Over the last 3-4 years, government borrowing under commodity operations has ranged between Rs300-400 billion. Although this may seem like a paltry sum given that public and private borrowing run in trillions, one must keep in mind that this sum is reserved for the troika’s use solely.
If the government really cared about the availability of commodities in general, the wheat support price would not have been fixed at Rs1050/maund, especially when the cost of wheat production in Punjab and Sindh lie above Rs1,020/maund. Moreover, distortions have also been created in the cotton market as the government has recently announced its intention to purchase cotton, in order to ‘stabilise’ prices, ie, save them from falling any lower. If one is any smarter by now, they would clearly know that lower prices are generally good for the population at large which by the way does need to clothe itself. And that this is another classic attempt at buy low to sell high. This is the lowest the cotton prices have touched in the last year and a half. A possible impact may be further denting of already descending textile exports as competitiveness gets hampered in a low-demand environment abroad. But yes, one must still complement the dear TCP for providing some brain and entrepreneurship to our hyper intelligent government.
The writer is an economic
analyst and freelance financial journalist. She can be reached at sakina.husain@gmail.com
Hard work and economic growth
Many would say that working for long hours results in better output, and that it can utilise human resources in a more useful manner. To a layman this might seem right but does this hold true for the more keen-eyed? A closer look at how the mechanics of our economic system work can provide us with a suitable answer to this quiz. As far as working-efficiently-is-better-than-working-more argument is concerned, it is only partially true.
Each country in the world devises its own policies that regulate how its workforce is trained, utilised and given respite from fatigue and burnouts. Some would prefer a more relaxed environment if their economic situation is better or getting better. Still others would like to run on all cylinders if they deem their economic growth to be too slow.
According to the Organisation for Economic Co-operation and Development (OECD), an average worker in Germany spends 1419 hours annually on his job whereas an average worker in Greece spends 2109 hours annually on his job. With where both the economies are headed, one can clearly see that working more does not always mean working better. Greece is not going upwards in its economic growth; instead, it has taken a hit and has only been rescued by a combined effort of the European Union members. Norway and the Netherlands have even shorter work hours though their economies have not shown a considerable dent in their wielding power despite a global recession.
An interesting question in this regard could be why the world does not follow German formula of efficiency. Why can’t the world follow a pattern of work ethics much like the Germans and be more efficient, more productive? The answer, though it requires more research in this regard, lies in the world’s system of economics. You see, one can be more efficient and thrifty, saving much more than consuming and thus work less for better economic rewards. Now if you have more savings, you can work less, export much, import even lesser, and create an economy that relies on exports rather than imports.
But if we continue along these lines, there is no rosy picture in sight. All countries cannot have more exports than imports and all countries cannot have more savings than borrowings. If they do so, the whole financial system would collapse on itself. Some countries have to be import-based or some consumption-based to keep the flow of financial assets on the move. A stagnant market, where there is no competition to take over one another, where one’s requirements need not be fulfilled by the other’s produce, a collapse of the whole economy is nothing but sure.
The stereotype that certain nations are more hardworking than others, has only as much credibility that the system allows them. In this regard, two examples stand out among the data compiled by OECD: the US and Japan. They are neither most hardworking nor most efficient. Still, their economic clout is beyond any doubt. The US is a major consumption based economy though its exports have a large footprint in the international trade, while Japan is heavily tilted towards an export-based economy. Both have almost the same number for work-hours their employment force clocks each year: the US 1778 and Japan 1733.
This can be true of certain nations, but not all. A poor country, howsoever we try twisting the statistics, has to work more than a rich country for the simple fact that the economic growth is an outcome of production and consumption, imports and exports taken altogether. Production or exports alone can provide only a good volume increase in economy, but it is the presence of consumption and imports as well that can bring the much needed economic growth.
The writer is Sub-Editor, Op-Ed, Pakistan Today.
Dollar enters the nervous nineties
It’s good news for exporters, bad news for everyone else. Reaching record high levels, the Pakistani Rupee – US Dollar exchange rate has breached the 90 mark for the first time in history, recording 5.3 per cent depreciation during the 5MFY12. Now that’s not all that bad, proviso your income is denominated in the greenback. Exporters for example, benefit from a depreciating rupee as a fall supplements their local currency reported top-line, invariably translating into fattened profitability. But what about importers, especially of the oil & gas breed? Surely, a depreciating currency would pose supply-side pressures; a real pain if demand dynamics do not allow for cost pass-through. But here is where the trouble begins. The US Dollar is all set to hit a maiden century. There is little doubt of that happening so the only question that remains is when. Will Sachin Tendulkar get his elusive 100th hundred before the Dollar reaches the century mark? Perhaps yes, but another dismal tour for the little master and the race is on.
Power, or the lack of it, is a key issue of which each of us is reminded of politely by sporadic load shedding and outages. It seems now that a sequel to the horrid episode seen in the summers is about to restart again. The pertinent question to ask is as to why have there been no (or little) outages thus far, given that an estimated 3,000MW shortfall in hydro power generation capacity was expected this winter? That’s only because the gas supplies have been re-routed from industrial usage to IPPs, household and CNG consumption. Surely we cannot afford to burn stoves at the expense of cutting off the lifeline of our income generating sources. Henceforth, gas supply is expected to be restored to the industry by January 2012, naturally coming at the expense of the amount supplied to power producers and used in homes.
This holds particular significance to the way the Rupee is expected to behave in the coming few months, as it has a direct impact on the country’s trade balance. Though load shedding is inevitable, a greater reliance on oil is likely to emerge shortly. Oil as a rule swells imports and coupled with consistently rising prices of crude in the international market, considerable strain on the import bills can be expected. Our currency’s relatively strong performance in FY11 was supported by a positive current account balance without too much of a drain on the financial account. This led to a Balance of Payment surplus of $2.50b last year. On the flip side, data reveals a shrinking trend in volumetric exports YTD as production dwindled (guess… no gas) as well as remittances – the hero till last year – peaking out in August owing to the Eid effect. Meanwhile, imports have already surged 20 per cent on the whole, enough to cause the trade balance to plunge to $9.06b so far since July. It is hard to see this improving in the coming months simply as it would be virtually impossible to control the burgeoning import bill of oil. Greater demand for Dollar to make these payments would put strain on our currency, going forward.
Then there is the financial account. To start off with, an IMF repayment of $1.40b looms around February as a first stop. The country has to repay around $9.34b by FY16, of which the bulk of the repayments are concentrated in the FY13-FY14 period, according to the repayment schedule released by the SBP. Nevertheless, Pakistan would be requiring on average $2.5b per year. The sources of such funds are unclear, but the more important concern is the exhaustive effect debt repayment will have on foreign exchange reserves. An absence of official inflows given the halt in IMF loan tranches and foreign investment is likely to keep the financial account on weak footing, if not cause further deterioration.
All aspects point to more currency depreciation in the coming months on the basis of simple demand and supply dynamics in favor of the greenback. To me the measures taken by SBP on the forward cover facility against private loans and imports appear good to the point of limiting undue market exposure through speculator activity, but inherently seem to carry the air of rising dollar expectations. Will the Dollar ‘march’ on towards three figures, or will it stagger in the nervous nineties for a while? Strictly a personal opinion, my bet is on the former.
The writer is a financial
analyst and freelance journalist
Most eligible public transport in town
Yes, you read the title correctly; it is about the most eligible public transport in town and not the most eligible bachelor in town. Therefore, the article does not foster sexual discrimination and caters to both males and females by offering them exciting new and old public transportation facilities. If you're searching all around your city to find your ‘Desired One’; you no longer need to rummage, for I have the definitive list of the town’s most eligible public transport and their current status.
Latest CNG buses: Only for Lahoris? Check. Smoldering good looks? Check. Heart throbbing physique? Check.. Burgeoning blockbuster release? Check. CNG? Uncheck, uncheck and uncheck.
Air transport: More specifically, PIA (read: Pakistan International Airlines). As long as you're okay with some flight delays, unexpected mood swings, uncooperative staff, skyrocketing fares, etc; you are free to book your tickets. However, there is a lot more exciting as side liners, so don’t worry if this does not work for you, because we have three new airlines coming up, very soon. Railways: It sure has a reputation of being a bit inefficient, but there’s no doubt that there has to be a whole story behind its rotten case study. Hint: a billion-dollar catch *runs to buy tickets of the new private train starting from January, 2012*
Local buses: I understand, ‘If we don’t have railways, we can use buses instead,’ but can we really trust the latter? The disproportionate hike in diesel prices has also further increased the inefficiency of these local buses. Rickshaws: I love the feel of travelling on a rickshaw, but it makes me sad when the rickshaw wala demands for more money just because ‘peetrole’ is too expensive and there is a CNG strike for god knows how many days. Metro: Don’t mistake it with Metro Cash & Carry. This option is not even on the list. Subway: Again, we can only take it on face value and extract good vegetarian or non-vegetarian sandwiches and salad from here. Good news, it will take us on a journey to taste the ‘international food’, without moving a single inch.
The definition of public transport here in Pakistan, today, is a misnomer owing to the public institutions’ inefficiency and public’s general impression of the entire concept of public transport. Weighing both the public and public transport dilemma is therefore, of extreme importance. Starting with the former; the public dilemma is better analysed as a ‘pseudo facial’ mentality that runs for an attractive private transport, but would disregard the most eligible public transport in town. No, I am not talking about the luxurious buses in town that do not hurt your ‘conscious tag’, but all the rest available at your disposal, in your respective cities. Public needs to change their habits, lifestyles and attitudes; not their cars.
Similarly, coming to the public transport dilemma; public transport has not been in such a dire state since the day of its conception, it has taken continuous levels of mismanagement and corruption to bring it to this stage. Putting it correctly, public transport is in serious competition with private transport on a number of fronts. And definitely there are advantages for everyone in developing public transport. For every extra person who takes up a public transport ceases the possibility of one person travelling from car, hence, less congestion on the roads and less competition for those scarce parking spots. At the end of day, we fail to address the huge responsibility that rests on our shoulders. We need to become the rekindled change agents to bring transformation in the society as a whole, instead of waiting on the system to change. No doubt, the foremost solution is to improve the public transport in order to serve the demand. But then again, change should be on both sides. The public should also realise and inculcate the habit of preferring frequent use of public transport over private.
The writer is Sub-Editor,
Profit. She can be reached at syedmaheen@hotmail.com
Islamic Investment Funds
Is it about time that Islamic investment funds start screening out the companies doing business with the countries that are not friendly towards Islam and Muslims and other companies supporting causes and movements that have a hostile attitude towards Islam? As being part of an over one trillion dollar Islamic financial services industry, should Islamic investment funds start a new journey of investors activism to promote causes that are in line with Islamic civilisation and discourage businesses and activities deemed undesirable from an Islamic viewpoint?
I have in the past advocated non-political nature and operations of Islamic banking and finance, and am indeed considered as a keen advocate for cooperation between Islam and the West. While I remain convinced of the benefits that can be derived from the financial alliance between Islamic and conventional financial institutions, it is interesting to note that US Socially Responsible Investing (SRI) funds have for some time screened out the companies that engage in business with Sudan. Although this view may have a humanitarian dimension, it cannot be denied that it has strong political implications as well.
According to 2010 Report on Socially Responsible Investing Trends in the United States, issued by Social Investment Forum Foundation, "increasing numbers of institutional investors and money managers are addressing the crisis in the Sudan, whether through targeted divestment or active engagement with companies exposed to the risk of doing business in such a volatile, repressive regime. Indeed, Sudan-related investment policies have displaced tobacco as the most prevalent ESG (environmental, social and governance) criteria incorporated into investment management, affecting more than $1.3 trillion in institutional assets and nearly $450 billion across all investment vehicles included in the money manager phase of research."
In my view it is time for Islamic investment funds to start offering some real value addition to investors beyond just Shari'a compliancy. Islamic investing so far has by and large been concerned with assurance of Shari'a compliancy by screening out forbidden activities (such as gambling, interest-based financial services, liquor, pork and adult entertainment); it also includes some other activities deemed undesirable for social responsibility or political correctness (like tobacco and arms). It employs two types of screens: industry screens (as above) and financial screens (to ensure that balance sheets of the companies chosen are in compliance with Shari'a). There is, however, a growing need for a detailed set of rules and regulations to be developed to categorise Islamic investment funds into merely Shari'a compliant and purely Islamic funds.
As a starting point in this direction, a fund
may be called a Shari'a compliant fund if:
1. It does not invest in the companies involved in production, distribution, marketing and sale of Shari'a repugnant goods and services; and
2. It does not get involved in Shari'a repugnant activities to conduct its finances (both in raising and deploying funds).
A fund may be categorised as an Islamic fund if:
1. It is Shari'a compliant in its product offering and in terms of its finances and operations; and
2. It promotes any or all of the broader objectives of Shari'a, which include promotion of the well-being of all mankind in terms of safeguarding faith, life and self-esteem, intellect and human capital, and posterity and wealth.
The term Islamic Shari'a funds industry can be used for both Shari'a compliant and Islamic funds.
While a Shari'a compliant fund may not take a political view on its investments, it is important that an Islamic fund ensures that its investment strategy promotes at least one of the objectives of Shari'a. Thus, prohibition of investing in companies that support movements and ideologies like Zionism and aggressions like Israeli occupation of Palestine may fall under screening of Islamic funds. On a company level, while a stock like that of Starbucks can be included in a Shari'a compliant fund (if it comes out of the chosen Shari'a screens successfully), it must not be included in the portfolio of an Islamic fund, because Starbucks publically supports Israel, who are blameworthy for the killing of innocent people including women and children in the West Bank and Palestine by the Israeli army.
It is also important for the Islamic financial services industry to start taking a view on the Islamicity of the fund manager. After all, if an ethical fund manager is not committed to the ethical values, its credibility as an ethical fund manager must be questioned. Similarly, an Islamic fund manager must demonstrate its full commitment to the objectives of Shari'a (as outlined above). While the profit motive can still be recognised as a valid reason for offering a Shari'a compliant fund, this must not be the raison d'etre' for offering Islamic investment funds.
The writer is a Shari’a advisor to a number of banks and financial institutions and can be contacted at humayon@humayondar.com
Foreign pullout eases for a bit
The pattern in the last few sessions at Pakistan’s bourses, mainly at Karachi’s KSE-100 index, has been rather predictable. Up a few notches and then slightly down, or down quite sizably, but regaining as much a few days down the road. But amidst low volumes, the index has roughly lost by 700 points from its recent high of 12,000 – and it is not regaining it in a jiffy.
May be in another seven to eight weeks, it might get there again, but not unless there is a major development that provides the push and the momentum.
The good news meanwhile is that foreign funds’ pulling out investment seems to have eased off a bit – at least for the moment. Since that was one factor keeping the market depressed, even the temporary ceasing of this hemorrhage definitely is some relief.
The biggest recent recovery, after a sizable fall last week, came on two successive days after the weekend, on Monday and Tuesday – in the wake of President Asif Ali Zardari’s return back home from Dubai. The speculation on that count stopped, and the market perked up. The gain on Tuesday alone was a whopping 255 points, making the KSE page on the web under the title ‘Market Summary’ green almost all the way as one scrolled down.
But Wednesday again saw the market take a little tumble – by around 70 points. The motive of the investors so obviously was making a quick buck.
And this is a pattern that is likely to sustain, at least in the short term until mid-February 2012 and onwards – when the December-closing entities disburse dividend and bonus shares. In times like these, when the economy is stagnating at best, mid-February seems too far away for investors to come in droves and commence buying big time. So, with pocket books staying close till then, there would be little surges and minor dips, but the market would generally retain its present lacklustre mood.
For an Average Joe, what to buy and sell, for opportunities are always there? Mr Ali Malik, CEO of the First National Equities, is not just intuitive but very well informed too. He had some time ago marked Engro Corporation down as ‘Sell Now’ and predicted that it would fall steeply, to end up at two-digits. That when Engro’s star seemed to be shining bright and rising, being traded at Rs200-plus apiece. Despite a slight upward movement, and an upper lock the other day, it is being traded now at around Rs94.
If you go by Mr Malik, this is not the worst that you’ve heard of Engro. He forecasts that it could go down to even half its current price – which is already well below half of its peak.
Now that is some fall. I have never owned a bunch of Engro, so that is not going to hurt one. But going by that advice, and given that Mr Malik has mostly been spot on with his predictions, an Average Joe would do well to cut his losses here and now, before it becomes really expensive.
Mr Malik is not without a sense of humour either. And he believes that most Engro shareholders, especially of the Average Joe variety, are a sentimental lot. And even if they sold it, they’d buy back the moment there is the slightest hint of upward mobility. Apparently, he must have seen enough such Engro patrons to have formed such an opinion. But if I had a soft spot for Engro, I would take this comment as a word of caution and would never touch it unless I was absolutely sure that there was solid evidence that its management had overcome the snags and the figures supported such a judgment.
There are a few mouth-watering buys in cheap and middle range that one has discovered, but the word count is up, so until next Thursday.
The writer is Sports and Magazine Editor, Pakistan Today
Asia, the dark horse
It is indeed ironic, and no one might have predicted this, that in times of need, the developing world will come to the rescue of the ailing developed economies. The eurozone, rather grudgingly have accepted this new role with the west now gradually being reshaped, and in some aspects humiliatingly by Asian wealth. In order to feel the pervasive air, all you need to do is wakeup, open the international pages of your daily newspaper, and while sipping at your freshly brewed coffee that your wife has left on your breakfast table, read about European leaders, frolicking around at their best behaviour around Chinese officials, hoping for a bailout. That’s almost as desperate as borrowing cake from your next door neighbour on your child’s birthday. Pretty embarrassing for the kid, and let’s not delve into the awkward position you put yourself into.
What is most intriguing is, that after decades of being mocked, mimicked, and ridiculed for whatever reasons, the Asians and their investment decisions are now supporting and in fact in other instances even rescuing European and North American businesses. Let us consider the various news reports that have recently made the rounds. First we have the example of Saab that finally this week filed for bankruptcy following a rather turbulent journey after the takeover by a Dutch carmaker that failed to meet sales targets. The result was, that production more or less came to a halt.
In contrast we have Volvo. Round about the same time, when General Motors sold Saab to the Dutch carmaker, Spyker Cars, Volvo was taken over by Geely that is considered as the second largest carmaker in China. In comparison to the European counterparts, Volvo has prospered under the Chinese carmaker, and as far as one can understand the company has a stable and bright future. Geely, will also soon have the distinction of becoming the first Chinese car manufacturer to launch their vehicle in the British markets, with their car put on sale towards the end of sometime next year.
The moral of the story is, and to put it rather crudely, Asian motor companies have been able to transform European and Western companies that were flagging, in a way that has boosted their overall performances, a point that can strongly be reinforced by the brilliant performance of Tata with Jaguar, Land Rover. Which then reinforces the argument, that the Asian’s are not as stupid as the West has made them out to be for a long time now. Secondly, the reverses in the West ring alarm bells of opportunity for the East.
Despite, all the cynicism, when hard facts are analysed it will be learnt that more than 1/3rd of all the worlds savings originate from Asia. For us, a crisis merely marks an opportunity to buy the remnants of a glorious empire that fell folly to its own hubris, to the fallacy of its own policy making. Thanks to all the chaos, we get the opportunity to bottom fish the prizes once again. And it is not only the Chinese money that is now snapping up bargains from the Western powers, the trend is picking up in the oil rich countries of the Middle East as well. For reference, you need only look up the recent purchase of $300m stake in Twitter by Prince Alwaleed bin Talal. Despite the loss of control, for countries like Britain and much of Europe this change in dynamics does not point towards complete hopelessness but an opportunity to invest in Asian markets. After all, the wise would remember that Britain, amongst other western countries earn more from investments made abroad, than it pays out in dividends and other remittances. The mindset of the Asian investor, can be summed up in what the head of Fosun, Liang Xinjun, China’s largest private sector conglomerate, said, “EU-US consumer spending has deteriorated in the last three to four years and will continue to fall in the next four to five years. Growth of their enterprises will be limited or even fall. So we can buy about 10 to 30 per cent shares of their companies, become their top or second shareholder, and then bring them into the Chinese market to grow."
And so, ladies and gentlemen, let me welcome you to the new Asian century.
The writer is chief manager SME bank and has over 30 years of experience in the banking industry
Time for hard but necessary decisions
With privatisation of sick public sector enterprises (PSEs) off the table and the trade gap widening, the government’s fiscal space is going to come under increased pressure again. Those in charge need to be reminded that the government has no business doing business. Far stronger economies, like Britain and France, that once tilted towards overriding central control have embraced market wisdom that privatisation increases efficiency. Such steps should serve as important lessons for developing economies like ours. Yet we continue on the same old path, sidestepping tough-but-necessary decisions like turning sick and hemorrhaging state owned entities to market forces.
The trend is a reflection of popular politics in our part of the world. These white elephants have long served as ideal avenues to absorb political appointees, an exercise of monumental importance to the political hierarchy. But considering the present state of our economy – mired in chronic stagflation with the growth target revised downward again – kicking the privatisation can down the road means inviting obvious trouble.
It is pertinent to note entities that were in private hands two-to-three decades ago, and measure their efficiency in government hands. KESC is the prime example. Once a blue-chip, it is now struggling to stay afloat, that too after a good Rs150-175 billion in bailouts. PIA ranked among the best airlines in the world in the ‘60s. People prided themselves for associating with the national carrier. Airlines it helped setup – Singapore Airlines, Malaysia Airlines, Emirates – now rank among the best, while PIA struggles with regular flights. Railways, once the transport of choice, is in a ridiculous state of disarray.
The best precedent for successful privatisation comes from our banking sector reforms of the ‘90s. The initiative transformed the entire sector, more than 80 per cent of which is now consolidated in private hands. It turned those banks from loss making institutions to profitable entities. Yet the government remains oblivious of the urgent need to reform loss making entities.
I have often advocated the need to privatise both loss and profit making entities. There is enough empirical proof to back fears that if the latter are left in the government’s hands much longer, they too will be run into the ground. And at the risk of repetition, I must mention that there is a prudent manner in which to undertake the privatisation initiative. There must be a competent, independent Board of Directors, which will chose a proficient chief executive and management team mandated with stabilising all public organisations to prepare for strategic privatisation. However, for the process to benefit the people of Pakistan, it is important not to undertake it lock, stock and barrel, rather do it in a strategic manner. It is much better to offer 26 per cent of companies for privatisation while retaining management control instead of plunging 51 per cent.
As regards the balance of payments (BoP) situation, it is worth noting that practically all our crises – whether the slump of the ‘90s or the downturn of ’08 – have been BoP problems. The problem is that whenever our fiscal mismanagement drains foreign reserves, we obviously cannot print dollars, hence the need for repeated bailouts. Yet the external side has been stable for the past two years, with strong remittances bolstering the reserves position. However, of late, there are signs of dark clouds gathering over the external front again. Remittances have started peaking. Exports are dropping, not the least because the international commodity price hike that bid up cotton has subsided. And imports are rising, predominantly because of high oil and input prices.
The external situation would not have been ominous if IMF pipelines were still open or the international market was conducive to Pakistan. But since IMF has linked grants to performance, which Pakistan has failed to live up to, we can expect bottlenecks from other bilateral and multilateral donors also, since they use the IMF nod as a go-ahead signal for indulging economies like ours. Now, with multilateral donations questionable, relations with the US rocky, $1.2 billion repayment beginning in Feb, and receivables from Etisalat and bond issue also uncertain, reserves are likely to come under pressure very soon. This means the rupee, already hovering around its lowest-ever level against the dollar, will be pressured further to the downside.
Time has come for the government to take prudent steps to improve export earnings and ease its fiscal burden. We need to enhance trade earnings, reduce reliance on imports and ensure public companies bleeding billions every year are handed over to the efficient private sector. Failing this, our position will become increasingly worse. The time for action is now.
The writer is a former finance minister
Flying with cockroaches
Our nation is afflicted with a severe crisis. It is one that threatens the very existence of those that inhabit this land of the pure, ironic when we call it ‘pure’. A few weeks back I read an interesting news report. Apparently the PIA has hired a PhD for the important task of killing all forms of pests including rats, cockroaches, lizards which are seen frequenting these planes. Whether, they had a pun intended here, I do not know, but I did hear the sniggering sounds of lizards, cockroaches and rats. They too laughed at the irony of it. Can the decline of national public sector institutions be attributed to cockroaches, lizards and rats, in the presence of their human infestations wreaking greater havoc to these organisations? I came across an advertisement of the PIA from the 1960’s. Had I not read PIA on the advert with my own eyes, I could have sworn that it was any international airline company like perhaps Pan Am. It showed a smartly dressed air hostess pointing towards PIA destinations that were painted like a graffiti on the wall behind. What stood out about the advertisement was the way the national flag carrier, and Pakistan saw itself back then. For many Pakistani’s, becoming part of the national flag carrier was a dream come true. That dream, was conveniently trampled upon, crushed, violated and polluted by the cockroaches that have over the years infested the echelons of power. At that time, PIA was the trendsetter in the airline industry. It was a time, when PIA upheld the institutional ethics that make institutions what they are. While talking to an uncle of mine, who had witnessed the meteoric rise of PIA back then, he said that a pilot back in the day, refused to wait for Khan Sabur, a minister from East Pakistan, who could not arrive the airport on time, owing to a closed railway crossing. The minister, naturally was furious but the PIA, said that the airline would not inconvenience the passengers for the sake of providing protocol to a minister. Back in the day PIA was an institution, with a spine, a spine that was reflected by the people that were at the helm of the organisation. Unfortunately that cannot be said about the national flag carrier anymore. The time, where gifted, competent and talented leadership was managing the affairs of the PIA like an airline should be run, are long gone. The rot, that set in was swift and unforgiving as it nosedived into the depths of corruption, nepotism, inefficiency, cronyism, rank inefficiency and the lower end of mediocrity. When one looks at the statistics, one is pleasantly surprised that PIA is still functional. After all, it has been subjected to an ‘all you can eat’ frenzy of incompetent people that have been stuffed unmercifully down the throat of the national flag carrier for political motives. PIA has the distinction of being one of the most overstaffed air line, with an employee to plane ratio almost touching 1:400. Maybe, we should hire another PhD for the cockroaches and rats that scurry the corridors of power to explain to them the law of diminishing marginal returns. Therefore in such a setting, the cabinet committee meeting in Peshawar decided to shelf the privatisation plan for PIA, Railways and other national institutions. We’re glad that they did, for we do believe in their superhuman ability to perform miracles on public sector enterprises, even if those ‘miracles’ have the tendency to miserably backfire. What PIA needs is competent leadership, one that works to improve institutional efficiency and invests in able and capable human resource. A PIA bailout plan has also been finalised, with Rs20 billion worth of injections to be made in different phases. But without hiring another PhD to clear the rat and cockroach infestation in our public sector institutions, such bailout packages will be like giving ‘vodka to a drunk’. The writer is News Editor, Profit. For comments and queries: ali.rizvi7957@gmail.com
Improving the HD indicators
It seems that the current political developments which are capricious have overshadowed the findings of the recently released UNDP report on the Human Development Index (HDI). Thus far it has failed to magnetise the attentions of Pakistani mass-media, government, political leaderships, bureaucracy, NGOs, and the civil society at large - a serious neglect indeed. This article is an attempt to raise the issue and draw attention of policymakers and the political leadership. There are startling statistics that we all should debate around. South Asian countries in general and Pakistan in particular have been struggling to improve the HD indicators which currently stand at the bottom of the ranking’s table. Out of 187 countries Pakistan stands at the 145th position, India 134 and Bangladesh 146. Pakistan’s life expectancy at birth stands at 65.4 years, India 65.4 and Bangladesh 68.9. Expected years of schooling in Pakistan are 6.9, India 10.3 and Bangladesh 8.1.
Pakistan’s mean years of schooling is measured at 4.9, India 4.4 and Bangladesh 4.8. Gross National Income per capita as measured in Purchasing Power Parity, for Pakistan, is $2,550, India $3,468 and Bangladesh $1,529. According to the UNDP report, the overall HDI value for Pakistan is 0.504, India 0.547 and Bangladesh 0.500. Interestingly, tall claims have been made on India’s economic performance; however, given the India’s current HDI ranking it can be concluded India’s robust economic growth has failed to improve the socio-economic indicators of the country.
Pakistan’s story is no different than other regional countries, indeed. Due to our own neglect, the economy stands in deep waters and socio-economic indicators have worsened over the last years. Population explosion, poverty, unemployment, poor economic governance, prevailing high level of corruption in the society, low tax-to-GDP ratio, increasing domestic and foreign debt, energy crisis and unsatisfactory security situation are stated to be real barriers which have negatively affected the socio-economic indicators of the country.
Ironically, Pakistan’s spending on education and health is one of the lowest among the developing world. It is now said that after the 18th Amendment, provinces have been empowered to manage health, education, social welfare and other ministries. Clearly, the onus is now on provincial governments to step up the process and make ministries, which they have inherited from the federal government, more vibrant, focused and professionally driven.
Nonetheless, it seems that education and health are given the lowest priority by all provincial governments and that they don’t have the capacity to run these ministries. It is also felt that the working of the ministries, which is run by the incompetent corrupt bureaucracy, is painfully slow with deep cracks and holes in it. These, however, can be filled if the incompetent and corrupt bureaucracy is replaced by a new delivery system which is fair, fast and transparent and is run by dedicated and honest professionals.
To enable the system to work more effectively and diligently, a more focused and coherent approach is required. Besides making the health and education ministries more effective, Poverty Alleviation Cells are to be established in all provinces which are focused on providing effective and immediate social safety nets to the poor. To meet this end a strong nexus of the development sector, local governments, academia, communities, and civil society is to be created. This is the only way forward. All political parties must give priority to education and health in their manifesto and practically demonstrate it instead of doing the lip-service.
However, all provincial governments should realise the gravity of the situation, and showcase serious efforts to improve HD indicators. The capacity of the relevant ministries must be scaled up to ensure timely and smooth delivery of services. This is not a mission impossible job-it can be achieved if the will of the political leadership exists.
The writer is an Islamabad based freelance contributor, researcher and trainer. He can be reached at syed311@hotmail.com
Blog for business
Blogs have become a new ecommerce buzz. Marketers are blogging for organisations, products, ideas and or for other goals and achieving. A business blog is the one published by or with the support of an organisation to reach that organisation's goals. In external communication the potential benefits include strengthened relationships with important targeted segments and positioning of the publishing organisation as industry experts. Blogs are also referred to as tools for collaboration, engagement and knowledge management.
Once an organisation has a blog, it offers immediate and high impact interaction with its target audience. As more people have online access, they will want more than the standard online newsletter or typical PR response. Long gone are the days when companies simply fed information to their customers. Now everyone asks for a dialogue - a meaningful exchange of information. Consumers also want to know that organisations are listening to them and paying heeds to what is being suggested.
From a business point of view there are several potential reasons to blog particularly in less connected country like Pakistan. Blogs are no different from channels like video, print, audio and other forms of presentations. This word of mouth (or call it word of mouse) marketing delivers results including stronger relations with important targeted segments.
Who should blog for the businesses? Ideally, front line people who know the business in and out should blog about it. Marketing professionals can also use this powerful tool. Organisation can hire professional writers to blog for them under company's name or blog under their own. Depending upon the feedback and information provided by audience, internal bloggers can develop the ability to write in their own voice and create content for business blog. On the other hand, external bloggers can view business with an objective eye and offer fresh marketing ideas and strategies. External bloggers can study company's marketing materials, reports, other collateral information, and meet key people in organisation to learn about what organisation does and how best to market the product through blogging.
Earlier, online marketing and websites never picked up in Pakistan because of obvious "digital divide that exists due to individual disparities in levels of income, education standards, psychological reasons, age, gender, rural urban divide, and quality of life or collective deprivations like lack of physical infrastructure." Things have changed for the better. Now the stage is set for Pakistan corporate sector to look at blogging as an opportunity to reach out and take advantages. Best thing is that local businesses have noticed the growing readership and influence of these Internet postings and the buzz corporate blogging can create particularly as a process of Search Engine Marketing or targeting online segment of consumers.
Let me add that businesses cannot afford to ignore blogs because blogs are simply the most explosive outbreak in the information era since the Internet itself. Elsewhere, blogs are already shaking up just about every business. Blogs are a phenomenon that no futuristic business can postpone any further. Given the changes barreling down upon us, blogs are not a business elective rather a prerequisite. Like anywhere else, blogs can be a welcome mat for local businesses to reach out across the world. Pakistan bloggers are exceptionally good. They have expertise for corporate writing. Their language and blogging skills and networking capabilities can be compared with any bloggers' community in the world. Internet coverage and users' base is constantly growing. Even trend to shop online is taking off. Given chance, blogging can help any business directly as well as indirectly. And the whole world is your market as they say.
My recommendation is that every business, large or small, must start thinking out of the four ‘p’ marketing paradigm and have a blog.
The writer is Deputy Controller
of Examinations at Lahore
School of Economics. He blogs at http://logicisvariable.blogspot.com/ and can be reached at sajshirazi@gmail.com
Let euro enter teenage!
Albeit knowing the fact that global financial markets are prone to financial bubbles, the recent European sovereign debt crisis has been, due to its distinct features, not only successful in making a fool out of the financial gurus but it has also shattered the very foundations of financial markets and traditional finance’s concepts at such a drastic level which was surely beyond the imagination of even those having an extremely sceptical vision.
Sovereign debts, particularly those issued by the industrial giants of northern hemisphere, have long been considered as infallible by the financial community due to their strong economic and financial systems supported by the massive capital intensive infrastructure. That is exactly why despite observing the increasing vulnerability of eurozone due to the inability of Greece, Ireland and Portugal to refinance their debt in 2009-2010, majority of financial market players seemed unaware of what was about to come! And the first thrust of tornado was felt severely by the financial world when the 70 year old mighty US treasury debt, which had always been considered the most suitable proxy of Risk free rate (at least in the text books), was downgraded by Standard and Poor’s for the first time since its birth. Sadly that was just the “beginning of a new beginning” and US treasury debt downgrade has been proven the first domino after whose fall there was left nothing but a count. From Italy, Spain and Belgium to the mistakenly downgraded France, the major dominoes have continuously been falling and the world especially Europe seems unable to even preserve the very existence of eurozone, let alone to achieve recovery.
Tonnes of reasons can be provided on ex post basis to explain the fundamentals that exacerbate this crisis, however, in addition to putting blame on fancy words of “sovereign debt” or “debt to GDP”, the echoes of some not so easily forgotten words associated with the sub-prime mortgage crisis like real estate bubble, derivative securities and the role of rating agencies are also being heard during this emerging fiasco of European sovereign Mozart.
If we look at the importance of euro by analysing the data of COFER provided by IMF, we find it just behind the USD having 14.4 per cent share in the world reserves following 32.5 per cent share of USD. From July 2011 to December 2011 almost 10 per cent of euro’s worth has been vaporized against USD on a continuously compounded basis; against PKR this loss is approximately seven per cent. This is indeed a huge loss; however, it is no more than equivalent to peanuts if we compare it to the value which is at risk. After all we are talking about the world’s second largest reserve currency!
What would come out is very difficult to predict at least at this stage of time, particularly because of the unique Eco-Political nature of this crisis. Meetings by decision makers are being held on regular basis and the second week of December is considered as the critical week to save euro by enforcing stricter rules of fiscal discipline on the member countries. ECB is also expected to intervene by initiating massive buying of Italian bonds in an attempt to lower their yields. By the end of Friday’s meeting market participants will be able to know what the fate of MARKOZY plan is. Will all these actions be sufficient to recover from the crisis? There is a big question mark ahead of it. Otherwise to imagine the worst case scenarios, one should look at the suggestions, that have already been floated from the different corners of intellectual community, ranging from the voluntarily exit of nasty actors to save the remaining fraternity to the complete elimination of euro zone.
The writer is Chartered Financial Analyst and Financial Risk Manager. He holds a PhD in Finance from Paris Sorbonne and currently heading the Department of Finance at University of Central Punjab, Lahore
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