Inside the mind of Pakistans richest business baron

Mian Mohammad Mansha is one of the most prominent and respected businessmen in Pakistan, and the Chairman of Nishat Group, which holds diverse and major business interests in Textiles, Banking, Insurance, Cement, Power, and Aviation.
He has served at the boards of various institutions, including the International Advisory Board at Babson College, Boston, USA. In recognition of his unparallel contribution, the Government of Pakistan conferred him with the "Sitara-e-Imtiaz" - one of the most prestigious civil awards of the country - in 2004. He is also the first Pakistani on the Forbes list of billionaires.
INSIDE THE MIND OF PAKISTANS RICHEST BUSINESS BARON In this interview with BR Research, Mian Mansha talks about various topics ranging from cement to textile and banking. Mansha cites structural issues in Pakistan as the biggest hurdle stressing on the need to ensure good governance. Mansha does not seem too keen on the IMF programme calling for a better energy mix to get out of trouble. Despite the problems, he is very optimistic on Pakistans future. Following are the edited interview transcripts:
BR Research: What are Pakistans biggest problems? Mian Mansha: The biggest of all are our structural problems, and law and order is inter-related with these structural problems.
Then there is a lot of uncertainty; until price distortions are removed, people will not make any long-term investment. A few days back, an ADB mission informed us that they didn see long-term stability in any of the industries which they wanted to support.
The bottom-line is all about competence and good governance. For instance, in case of PSEs, before we sell their strategic shares, we have to pre-qualify the investors to verify their track records. The regulators need to be vigilant of the identities of the investors. Plus, for best results, they also have to transfer the management of these PSEs.
BRR: Speaking of governance, do you think the new-found democracy has worked well for Pakistan?
MM: Unfortunately, democracy hasn worked in this country because the management practices of the politicians are very poor.
The tough decisions should be taken in the initial honeymoon phase of the government, because after two to three years, when the goodwill ends, it is difficult to take some serious action. Military governments also waste initial few years due to lack of legitimacy.
BRR: Do you think the involvement of multilateral lending agencies helps set the right policy direction, and are they in line with our long-term policies?
MM: Not at all. The countries that live on the IMFs and World Banks medicine always remain in problems. There are numerous examples world over, look at Pakistan, the government institutes have been destroyed because of the World Bank and other international institutions.
I strongly believe that we have a number of excellent Pakistanis with adequate conventional wisdom to solve our unique socio-economic-political issues locally.
BRR: We are under IMFs programme, where we
e trying to resolve the circular debt issue by increasing prices. Do you think it will work?
MM: This will never work. Its a structural problem. We need to have a better mix of energy.
We have to allocate gas to the power sector, but we
e wasting that. Is there any country in the world where the CNG industry flourished? A car runs at only 30 percent of its efficiency on CNG, whereas a gas turbine runs at 60 percent efficiency.
Right now, only the well-off benefit from this, whereas the poor man runs his tube well and tractor on diesel and motorcycle on petrol.
Above all, these are national assets; we should price them properly for the poor and allocate them properly for maximum efficiency. Otherwise we will never get out of circular debt.
BRR: Whats your view on the risks of double-dip recession, especially in the aftermath of further monetary loosening in the US?
MM: Real estate prices played havoc all over the world not only in US but elsewhere as well. Last month a senior banker from Dubai told me that you can buy a property in Dubai but can sell it and similarly you can lend money but can recover it.
So, I think its a very serious issue. Property prices all over the world are quite distorted; so much so that for the price of a one-bedroom apartment in London, you can buy a whole street in Bradford.
Since speculation leads to distortion, it is not what a good businessman does.
BRR: Where do you think global economic blues will lead us?
MM: If you look at world history, after every 30-40 years, a world war changes the dynamics of politics considerably - some new countries are created, and so on and so forth.
In the last 60 years, however, there have been no world wars. Democratic governments all over the world are coming under stress. Politicians are making false promises and creating huge debts, prime example is US after World War-II.
Whereas most of the surplus is from Asian countries like China and Japan, they are financing huge deficit of US by investing in their T-Bills. This is no way to run a country.
This is creating a great imbalance in the world economy which will one day end up in a major shakeup for the entire world financial system.
Greece and Ireland are fairly advanced democratic governments, where a meltdown has already started.
In contrast, look at China, which has grown leaps and bounds with approximately $3 trillion reserves. No country with Western-style democracy has grown like this, never in human history.
So, is this the end of the democratic way of life as we have been looking at? Sometimes, I wonder if a democratic way of government is sustainable in the long run with their existing practices
BRR: Where does Pakistan fit into this scenario?
MM: Im still very optimistic about Pakistan. The reason behind my optimism is that now theres some balance in society.
I have never felt as free as I do now. The credit goes to independent media and judiciary. As far as delivery is concerned, politicians are still behind the curve. However, with this state of balance, the process will bring more capable politicians in the forefront.
But at the same time, we have to stop printing notes and stop borrowing, and learn to live within our means. It is not going to be easy, but it has to be done like that. And we have to start listening to the competent people in the country. We have adequate conventional knowledge within our local Pakistani businessmen, industrialists and economists to resolve these issues.
EDUCATION & SKILL DEVELOPMENT BRR: Right! Competent people! Can Pakistan benefit from the so-called demographic dividend? MM: Human capital can and should be our biggest strength. We need a growth rate of 6-8 percent to absorb a rising youth population. And for that, we need to prioritise the industries in which we are going to concentrate.
In my opinion, the textile industry is the biggest opportunity for Pakistan to generate employment for the youth, besides earning foreign exchange. The distortions in that industry alone, if removed, would be hugely beneficial to the national economy.
For example, the textile industry requires less capital to start with and less energy as well. A garment factory with less than a billion rupees can generate more than 5,000 jobs and merely needs 1-2 MW of electricity. Certain countries have already adopted the model and their growth is amazing, like Bangladesh. I am sure this model will manifest many more opportunities in this sector.
BRR: What should be the role of private sector in the education sector?
MM: I think we need to spend a lot of money on education than we are doing right now. I believe that industrialists need to support them. If the government is building two schools, we should build twenty.
Similarly, as a country, we need to focus on quality higher education as well. You will see the real dividends when you unleash the potential of the private sector, but the government must play its part as well.
BRR: What areas of education should we be focussing on?
MM: The focus should be on professional areas such as engineering; however, at the same time, training for workers, especially women, in the garment industry can uplift the poor families.
FINANCING BUSINESSES BRR: Who do you think can run banks better; professional management or entrepreneurs? MM: I think this has been proven beyond doubt that all the big banks are managed better by large shareholders, everywhere in the world.
The reason is that shareholders take a long-term view. Therefore, I would suggest having a good mix of professional bankers and long-term shareholders.
The prime example is the Santander Bank of Spain, the fourth largest bank in the world by profits and the largest lender in Europe. It has successfully managed to stay out of the cyclical financial problems. It is run by a family with some very smart professionals. In 2008, the bank was declared the best bank in the world by Euromoney. In fact, its chief executive of UK operations, Antonio Horta-Os_rio, has been hired by the UK government for Lloyds Banks restructuring.
This case must be bench marked by other bankers as to how a successful bank must run.
Two other small but successful banks, i.e. Habib Metropolitan and Al-Habib, are also run by the right mix of competent professional bankers along with family members having vast banking experience. Allied Bank has long-term shareholders on its board and is doing very well.
Similarly our experience with MCB in Pakistan speaks volumes about the same. When we acquired this bank through privatisation, we had 12 partners -- from tannery, housing, textiles, etc -- and that is the reason we could supervise the bank better because we had better knowledge about Pakistans business environment. During last twenty years the bank has grown more than a dozen times and paid over 100 billion rupees in taxes.
BRR: So you are saying that the management has a short-term view, whereas major shareholders have long-term views?
MM: Absolutely. We are from the business community and know that which businesses are going down, which are going up, etc. It is such an art. You have to see the families of businessmen, their second generations, you try to watch out who will come forward and will succeed. So we have this advantage.
Banks used to function very well in the past, the only problem was that they were nationalised and there used to be interference from Islamabad. But, on a regional level, they were working very well.
In the old times, for example, a GM in Faisalabad knew everyones family in that city on a personal level. Now, we have tried to make it centralised, but results are getting distorted.
Some banks have specialised themselves and theyve done very well like, Al-Habib and Habib Bank Zurich.
BRR: How can the country come up with a way to finance small business ideas, when banks don lend without collateral?
MM: There is a very good method to handle this, like they do in the US in the venture capital industry. Investors spread their money amongst a large number of business ideas, and even if only a few of them are successful, they make good returns.
I was looking at the investments of a venture-capitalist who had invested in about 70 companies and made losses in all but one. And that company was Hotmail.
A venture capital fund must be developed in a private-public partnership to set up small businesses or with a provision that if these businesses end up in default certain portion would be funded by the government, In any case, we must encourage sharp entrepreneurs with good ideas.
BRR: But there is no venture capital or even private equity in Pakistan, how do you think it can be developed?
MM: When economic uncertainties are dealt with, and the market becomes more competitive, people will invest in companies to rehabilitate their business.
We are already investing in projects such as generating power through cotton sticks, coal washing, etc, which are cutting edge and somewhat risky, but the upside is significant.
At an institutional level, it would be difficult to launch such funds because of regulatory restrictions, but, in a personal capacity, I have done many unorthodox business ventures.
BRR: Whys isn MCB aggressive in giving out agri loans?
MM: MCB Bank does disburse agri loans and is ready to enhance the portfolio, but the limitation is absence of proper land records, collaterals and documentation.
Moreover, banking courts take years to give decision in case of any dispute.
BRR: Have you thought of getting into the consumer banking side?
MM: MCB is closely observing it and consolidating its consumer portfolio, and also enhancing its focus on SMEs and commercial banking activities. MCB is the largest transaction bank and the third largest remittance bank. They are going to launch at least three new products this year. However, in the long run, for a bank to survive, it has to largely depend on its superior customer services, be it personal, technological platforms, alternative payment channels or through cross-selling. Presently, these are the areas where MCB should focus more.
BRR: Why isn consolidation taking place in the textile business?
MM: First of all, I think all industries should be consolidated. Yes, textile should be too. For example, Australia produces 1.2-1.3 million bales of cotton, they have 30 factories. Pakistan produces 12 million bales and it has 2500 factories.
So the bankers and the financing people should see to it that consolidation happens. The judiciary should take necessary action to accelerate the disposal of cases in banking courts, or else they should come up with smart procedures. For example in Sri Lanka, bankers can exercise a procedure called "parate execution" which enables banks to recover bad debts by auctioning the mortgaged property without instituting court action, that considerably reduced the time and cost involved.
The bad debts cases of several small and medium scattered companies don ever come to an end and no decision is reached. If a factory has defaulted five times, someone else should take it, it should be as simple as that.
But now Im seeing banks becoming very strict about lending. So you will see bigger companies emerging in Pakistan.
THE GROUPS FUTURE PLANS BRR: Does your group plan to buy some textile firms and consolidate them?
MM: We are expanding in certain fields in textiles. We are getting to a professional level of the business. We have never faced any integrity issues. The focus of our family is to do things which involve the right mix of labour and capital intensive.
BRR: So which industry are you going into?
MM: Infrastructure, especially a very large power plant. We are not new in it. At present our group companies i.e. Nishat Group has four independent power plants and around half a dozen captive power plants. We are currently producing around 10 percent of the national energy needs.
Now, we are looking at an opportunity of a power plant of 5000 MW near Gadani at Khalifa Point; based on a blend of Thar and imported coal with an integrated port facility.
You see, we already import 200,000 tons of coal every month. A port can be made, an inlet be created for heavy ships to do that. Id like to do this.
We also want to go into energy from agricultural waste. In China they have power plants running from cotton sticks. We could put many power plants using those sticks. I have some Chinese consortiums coming to assess the possibility. Already we are using rice husk and corn cobs. We are looking at different agricultural waste. We have agriculture farms as well as have our cold storage. Food and energy are the future.
BRR: Any plans of acquisition in the banking sector?
MM: A businessman, like me is always open for exciting opportunities, so we will welcome a right opportunity. Normally banks have an adequacy ratio of 7 percent; MCB is running over 21 percent. The bank has so much liquidity and considered to be the strongest bank in Pakistan. It has all the reasons to expand either locally or abroad. It badly needs enhanced international foot print.
We need to invest abroad to bring some of that culture in the country along with their best practices. We can be isolated. A stamp of Proud Pakistan must be exported. It is not an option but a duty of our business group. When an Indian Group invests abroad, Indians laud their efforts. We expect the same.
MCB has opened a leasing company in Azerbaijan recently and we
e hoping to get a banking license. So we are trying a lot but our hands are tied.
BRR: There are reports that the Mansha group is planning to open a TV channel?
MM: As of now, we don have any plans.
BRR: What about the entertainment side? Any cinema or something?
MM: When I said we have to build infrastructure that includes social infrastructure. It is as important as others, be it entertainment, hospital, school, communication, hospitality industry etc.
We are looking at opening up a Sheraton Hotel in Lahore, though we are not being given permission for that. Similarly we are opening up a boutique hotel. Once we make one, well have a chain.
BRR: Would you also consider opening a restaurant chain as well then?
MM: No.
BRR: You were about to purchase a refinery at one time; what are your plans now?
MM: Even now I want to get into it because existing facilities neither produce petroleum coke in Pakistan nor very low grade furnace oil.
BRR: And what about the oil marketing business?
MM: Once we made a bid for PSO along with our strategic partners i.e. PETRONAS of Malaysia, which is one of the largest companies of the Muslim world that makes $12 billion every year. But a stay order was issued against it.
I do remember, one of the competitor in the bid, "British Petroleum (BP)" appeared in the court and made a request to the Judge, "we are here for investing and not for litigation, please exclude us, we refrain ourselves from being a part of this bid or from privatisation." It was a tragedy, just like the Pakistan Steel Mill case.
BRR: Any interest in the construction sector?
MM: Not really, unless we rectify our laws, housing won be able to flourish. If we don have laws for the repossession of houses, how can you do long-term mortgage financing? It is directly linked with the law.
Further, absence of proper record for real estate, even in large cities, is a big impediment. A few years ago, the Real Estate Investment Trust (REIT) was launched by SECP but could not take off just because of poor land record.
BRR: Whats the update on the cement business expansion?
MM: We are looking at a plant in Sri Lanka. Their government has given us an opportunity. There were limestone deposits in the Tamil area, which are accessible now and I have gotten a message from the Sri Lankan President to meet him.
BRR: Cement sector dynamics are changing here in Pakistan, whats your view on that?
MM: This is an issue directly related to freights. And freight as a percentage of cost is so much you cannot export to more than a certain area. But here, across the border, the price difference is relatively less. For that, we will have to open markets in India and Afghanistan, so that our local businesses can grow. We are in the vicinity of 2 billion neighbours that could be a potential.
I think the factories in Karachi will still be able to manage, but in the long-run, I don think it will be viable. There are possibilities of exporting to Central Asia, but the Afghan war has to come to an end for that. We can open up a plant there, thats a possibility.
BRR: Will you set up shops in Afghanistan if the situation is resolved in a few years?
MM: We will definitely. The two economies are synonymous. We will also open up banks there. The textile sector can play a significant role to generate employment there.
BRR: What about expanding in China?
MM: The road link with China should be further improved and deepened. It is a unique opportunity available to Pakistan.
For example, Urumqi, the capital of Xinxiang province, is situated near the silk route. Urumqi is the largest city in Chinas western interior and has grown into an important regional commercial centre since 1990.
There were talks of opening up an Islamic bank. They asked us to provide them our banking expertise, so we are considering a stake in a bank in Urumqi. The Chinese are pumping a lot of money into that area for its further development. So we are looking at that possibility also.
BRR: Your counterparts in India are also venturing in health and education; does the Nishat Group plan to get into these areas?
MM: Well, we went to Singapore and asked one of their largest companies to invest in hospitals with us, but they didn come. Then theres a company in Malaysia, which is essentially Seattle-based, to which we proposed several small-scale hospitals. But they ultimately declined because of the conditions in Pakistan. So we need to set in order whatever we have and people will start coming themselves.
As for education, we have setup many schools as a family. We focus on womens education and will continue to invest in the people of Pakistan.
MCB has started a unique project in collaboration with Care Foundation and Cisco, where they are developing a "Virtual Classrooms", from where they plan to beam lessons to schools in faraway locations. This project will ensure that best teachers, not available in rural areas, teach deprived students of faraway locations from main cities.
We are also in the process of determining whether we should build our own university or focus of creating a fund that disseminates scholarships to youth that want to study.
BRR: Any message to Pakistans young entrepreneurs?
MM: Have faith in Pakistan. My father passed away when I was 24 and we built the largest business empire here. The sky is the limit; one should not worry about anything. Keep on investing in Pakistan no matter what and you will eventually reap fruits.
BRR: Can we expect you to join politics?
MM: [laughter] No, I don have any plans.
Interview by Ali Khizar Aslam