Marketers Can't Be Bought, But They Can Be Valued

 

 

Marketing Makes Money & Money Makes The World Go Round!

Marketing is one of the most popular fields in the financial sector; unfortunately, it is also one of the least properly understood. The general investing public believe that marketing consists only of snazzy ads & catchy press releases. This misconception is so prevalent that it not only reduces the return on investment (ROI) for the investor community, it also compromises the quality of the decisions taken by company management. This issue is so serious that it can even impact the workings of the financial aspects of the welfare sector. While some people consider marketers glorified liars, the reality is that marketing is the science of telling the truth in the most digestible & peaceful way possible. In order to further drive the importance of good marketing strategies home, given below are a few examples drawn from current events that illustrate what could - or did - happen if professional marketers are under-represented in decision-making groups.

What's Wrong With The DFID?

The British Department For International Development (DFID) has been on quite a roller coaster since the last 3 months. First, the news broke that it had found itself in the embarrassing position of being caught with prohibited signals & scanning technology in Haripur, Hazara, Khyber Pakhtunkhwa, Pakistan. Next came the news that its chief Justine Greening was being asked to step aside for the current DFID chief Priti Patel. The latest is that Ms. Patel is rumored to be planning to scale down DFID commitments globally. Are these events linked? Did one lead to the other? Unless the UK Government issues a clear coherent explanation, there is a risk that the international community's faith in the DFID's financial stability will continue to erode.

Did MOL Pakistan Activities Affect Domestic Fuel Prices?

Rumor has it the MOL Group has recently been indicted for some shady dealings in Pakistan. But while there is no dearth of headlines sweeping the compass from congratulatory notes on the latest MOL gas discovery to mysterious hints of behind-the-scenes fuel smuggling operations, the question no informed party seems to have thought to address until now is what (if any) effect does MOL have on the skyrocketing energy prices in Pakistan? Asking the Federal Finance Minister is useless because he just takes it as an opportunity to do a Nancy Sinatra impression with a These-Boots-Are-Made-For-Walkin' press statement!

When Did F1 Become Small Potatoes?

Another illustrative example would be the ongoing sale of international auto racing conglomerate Formula 1. Ever since F1 chief Bernie Ecclestone's son-in-law James Stunt's younger brother Lee died in mysterious circumstances a short while ago, the until-now sedate & dignified coverage of the transaction has dissolved into a storm of suspicion & speculation as to why F1 in general & the percentage belonging to CVC Capital Partners in particular is being sold at a horrifyingly-severe discount to US company Liberty - which is rumored to be unable to afford even the discount rate & related expenses.

Can Big Soda Profits Last Longer Than The Bubbles In The Drinks?

In a similar vein, most Pakistani financial analysts & experts are at a loss to explain the recent step announced by Meezan Group to launch a new offshoot - Meezan Beverages - whose flagship product will be a fizzy drink named "Cola Next" (complete with a label design that currently looks almost identical to the Coca Cola Label), considering that Big Soda's biggest name - Coca Cola - is reportedly being gradually phased out (for "environment & health reasons") in countries as rich as New Zealand.

"There Is Nothing New Under The Sun. It Has All Been Done Before." - Sir Arthur Conan Doyle

The Menace Of Stone Age Living Conditions!

My PTCL 3G Evo Wingle wi-fi connection was suddenly severed without due cause (again) last Thursday night, June 23, 2016 (& wasn't restored until Friday morning, June 24, 2016). It pinched because I had been monitoring proceedings on the Brexit vote, & had hoped to read about the developments as soon as they came in, including the first vote count, the opinion of the British business class, possible effects on the activities of The City, etc. I agree, I could (& did) catch up on the news later on, but it just wasn't the same thing. Oh, well. Maybe this is what happens when you tell a firm that it can't just refuse to pay its debts & expect people to behave as though it is a paragon of Corporate Social Responsibility - even if it does build a few makeshift preschools in Nigeria. Maybe Etisalat feels offended that the Pakistani people don't really want to let it keep US$800 million of the taxpayers' money.

Nowadays, losing one's Internet link is akin to being hurled back into the Stone Age, primarily because channels like CNN & BBC have lost most of their awesomeness during the last decade or so, & now seemingly spend most of their time providing heartwarming coverage of French vineyards & New York City traffic. Great sedative effect, but that's all. The Web is humanity's last hope for accessing information that they actually care to learn...which is why some define being deprived of Internet access as a human rights violation.

Opponents of the idea that Internet access should be considered a human right, might say, "Oh, quit complaining! Your countrymen were filled with gratitude barely 15 years ago, just to get a few foreign TV channels! So what, if you have to go without the Web every time somebody at PTCL or Etisalat wants to vent his frustration over his issues or had a drop too much the previous night!"

Valid argument...in some ways. But, there are equally valid counter-arguments.

Firstly, foreign TV channels - especially news channels - were a lot more free to truly disclose & discuss current events 15 years ago than they are today.

Secondly, if corporate frustration is building up in either PTCL or Etisalat, somebody who can get in touch with Dr. Daniel Ritz (President & CEO of PTCL), ought to request him to introduce the executives & employees to some top-of-the-line industrial psychologists who would be willing & able to help them work out their problems.

Thirdly, if alcoholism or substance abuse is plaguing the company, maybe Dr. Ritz could consider asking the executives of an outstandingly-committed & quality-conscious company like China Mobile (& its Pakistani subsidiary, Zong) for some professional support.

I'm not an executive with PTCL or Etisalat, so I don't really know what challenges Dr. Ritz faces in running PTCL; I'm just trying to think constructively, instead of accusing everyone at PTCL from top to bottom, of gross incompetence.

What Can PTCL Do To Remedy The Situation?

The repetitious nature of PTCL's technological snafus would hint that the current approach is not working; in fact, the situation is so bad that many Pakistani subscribers maintain that service quality was actually better before Etisalat breezed into town & PTCL was privatized. But, if Etisalat is in such deep trouble that it cannot even clear its debts, than the service quality deterioration story has only just begun.

According to PkFinance.info, PTCL shares are currently in free fall, practically losing value by the hour. At close of trading yesterday (June 24, 2016), each share cost PKR14.82 as compared to the previous day's (June 23, 2016) close of PKR15.21. Even if we only concentrated on the principal amount Etisalat owes the taxpayers of Pakistan (& don't add interest or even calculate the amount in terms of real value), the debt (pending since 2005) is a hefty US$800 million - in other words, around 30 PTCL shares to each man, woman & child in Pakistan. Had there been the slightest indication that Etisalat is going to be able to clear its debts in the foreseeable future, its stock price wouldn't be crashing - & a stock offering might just have been a barely acceptable compensation plan for the horrendous 11-year (& counting) default. But, tragically, it doesn't seem that even Dr. Ritz's glittery Western credentials can be considered remotely relevant to finding a legal & credible solution to the problem.

There is one way that Etisalat can pay off the US$800 million without allowing Finance Minister Dar to flush Etisalat's brand image down the toilet by simply "decreeing" that people should let the company off just because he feels they should. They can take on a partner who will buy their debt in return for a piece of PTCL.

Opponents of this approach would instantly object & derisively ask why any company executive in his right senses would want to have anything to do with a currently-suspected-to-be-bankrupt company like Etisalat. The answer consists of two components, both of which, coincidentally, were announced yesterday (June 24, 2016):

1. Pakistan has been officially made a Member State of the Shanghai Cooperation Organization (SCO): This development not only indicates further strengthening of trade ties with brother country China, but also signals the beginning of Pakistan's de facto access to the Eurasian Economic Community (EAEC).

2. Britain has made the historical decision of severing its decades-long economic ties with the European Union (EU): While the consequences of this decision are not entirely clear just yet, but so far most Brit experts are quite sure that firstly, the effects (they termed it "damage costs") will take at least 2 years to settle down, secondly, Scotland has recommenced foreboding mutterings of independence, & thirdly, every high-profile Asian firm in London is busy chalking out a "Brexit strategy" of their own.

Therefore, now would be an excellent time to start looking for promising investors in PTCL, & the most appropriate names to start with would be as follows:

China:

Industrial & Commercial Bank Of China (ICBC)

China Construction Bank Corporation

Japan:

Mitsubishi UFJ Financial Group

Mizuho Financial Group

South Korea:

Hana Financial Group

Shinhan Financial Group

Bonds That Last

Pakistan: Where To Invest?

The local newspapers have been pretty pleased during the last few months about the launch of the Pakistan Stock Exchange (PSX) - which, in effect, was basically just a renaming of the Islamabad, Lahore & Karachi bourses, but otherwise pretty much meant business as usual. Hopefully, the extensive coverage of the renaming has generated an increase in awareness of the field of stock investment in ordinary Pakistani society, but not much else has actually transpired since the unveiling of the new PSX logo.

The reason for this is the fact that Pakistani investment nature is of the risk-averse variety (translation: the common man already loses so much money to high taxes & higher prices, that he prefers to put his money in financial ventures that aren't likely to bankrupt him with a single unexpected twist of the market). Mostly, this investment temperament means a liking for real estate (both cultivated or constructed), savings accounts & bonds. While real estate is considered the most valuable form of investment, & savings accounts pay a more-or-less respectable interest rate, the most interesting field in Pakistan is the bond market: As far as the common man knows, it is entirely dominated by Government bonds...which pay a pittance; but since there don't seem to be any other options, people just shrug tolerantly & accept whatever they get without question.

Changes: Home & Abroad

The PSX might have come across as the harbinger of positive change...but that possibility crashed & burned when the news broke that the Securities & Exchange Commission of Pakistan (SECP) management had been placidly letting thousands of firms from all over the world list without fulfilling legal requirements such as hiring a full in-house counsel team.

At the same time, Exchange Traded Funds (ETFs) have become quite popular, especially in the American newspapers, for supposedly being reliable forms of investment for the middle-class investor. Simultaneously, several top-tier multinationals have suddenly encountered a series of tragic setbacks that have cost them billions in lost revenues (past, present & future). Some of the most recent affectees of this troubling (& potentially long-term) trend are:

1. American International Group Inc.

An American insurance corporation that provides services in 130 countries (including Pakistan, from its office in Karachi). According to the latest figures (from 2014), it has a revenue of US$64.4 billion, net income of US$7.52 billion & operating income of US$10.5 billion.

2. Baker Hughes

One of the world's largest oil field services companies. According to the latest figures (from 2013), it has a revenue of US$22.364 billion, net income of US$1.096 billion & operating income of US$1.949 billion. While it focuses mainly on the energy sector, it handles a diverse range of businesses, such as the food retailer business it runs in the Pakistani capital, Islamabad.

3. Sirius XM Holdings

An American broadcasting company that provides satellite radio services. According to the latest figures (from 2015), it has a revenue of US$4.6 billion, net income of US$510 million & operating income of US$1.18 billion. While it tries to maintain a modest image, Sirius is actually quite the multinational with its products even available in Pakistan (particularly Karachi).

4. Smith & Wesson

An American weapons manufacturer, particularly firearms & BB guns. According to the latest figures (from 2012, primarily because the weapon sector is rumored to have sustained massive losses in future contracts, leading to most weapons manufacturers adopting a restrained policy of information-sharing), it has a revenue of US$412 million, net income of US$16.1 million & operating income of US$47.1 million.

Pakistan: Alternatives To Government Bonds?

While the highly-respected companies mentioned above are clear evidence that brands are no longer the indicator of success that they were in the simpler times of the past, the Pakistani investor community's marked respect for bond investment means that there is plenty of untapped potential here for companies from countries like Japan; but before any local investor can decide which bond to invest in, he or she must be thoroughly informed of the available varieties. A brief summary of the main types of bonds would be as follows (courtesy investopedia.com):

1. Corporate Bonds

A debt security issued by a corporation & sold to investors. The backing for the bond is usually the payment ability of the company, which is typically money to be earned from future operations. In some cases, the company's physical assets may be used as collateral for bonds.

Corporate bonds are considered higher risk than government bonds. As a result, interest rates are almost always higher, even for top-flight credit quality companies.

2. Convertible Bonds

A convertible bond is a bond that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the bondholder.

Convertibles are sometimes called "CVs."

3. Callable Bonds

A callable bond is a bond that can be redeemed by the issuer prior to its maturity. Usually a premium is paid to the bond owner when the bond is called.

Also known as a "redeemable bond."

4. Term Bonds

A term bond refers to bonds from the same issue that share the same maturity dates. Term bonds that have a call feature can be redeemed at an earlier date than the other issued bonds. A call feature, or call provision, is an agreement that bond issuers make with buyers. This agreement is called an "indenture", which is the schedule & the price of redemptions, plus the maturity dates.

5. Amortized Bonds

An amortized bond is a financial certificate that has been reduced in value for records on accounting statements. An amortized bond is one that is treated as an asset, with the discount amount being amortized to interest expense over the life of the bond. If a bond is issued at a discount - that is, offered for sale below its par (face value) - the discount must be treated either as an expense or it can be amortized as an asset.

6. Adjustment Bonds

Issued by a corporation during a restructuring phase, an adjustment bond is given to the bondholders of an outstanding bond issue prior to the restructuring. The debt obligation is consolidated & transferred from the outstanding bond issue to the adjustment bond. This is effectively a recapitalization of the company's outstanding debt obligations, which is accomplished by adjusting the terms (such as interest rates & lengths to maturity) to increase the likelihood that the company will be able to meet its obligations.

7. Junk Bonds

A junk bond is a colloquial term for a high-yield or non-investment grade bond. Junk bonds are fixed-income instruments that carry a rating of 'BB' or lower by Standard & Poor's, or 'Ba' or below by Moody's. Junk bonds are so called because of their higher default risk in relation to investment-grade bonds.

8. Angel Bonds

Investment-grade bonds that pay a lower interest rate because of the issuing company's high credit rating. Angel bonds are the opposite of fallen angels, which are bonds that have been given a "junk" rating, & are therefore much more risky.

"Formal Education Will Make You A Living; Self-Education Will Make You A Fortune." - Jim Rohn

Rise Of The Machines?

When it comes to long-term or large-scale investment for an individual who does not have a background in finance, the success (or failure) of the endeavor depends almost entirely on the acumen of the financial advisor. If he knows his job, champagne rains down from the heavens; if he doesn't, I'd rather not discuss what falls from the sky instead!

However, recently, a new trend has started making the rounds in the business journals & periodicals: "Robo-Advisors". Apparently some of the wealth management firms have been convinced that a well-written software application can do the job of a financial advisor in a fraction of the time & for a fraction of the cost. Several firms have hired in-house programmers or contracted the assignment out to established software companies like Apple & Microsoft & expect to begin beta testing this summer.

Presently, the income of a good financial advisor anywhere in the world is as generous & steady as that of a competent lawyer in the US or an efficient doctor in Pakistan. Is there cause for concern for the financial advisor community? Most financial advisors think not. Because, to paraphrase a line from one of my favorite Hollywood movies, "Stealth", there are some assessments that even the most advanced computer can't handle & therefore must leave to human beings.

Automated Assessments

Malcolm Forbes once said, "Millionaires don't believe in astrology. Billionaires do."

In effect, in order for a financial expert to be all he or she can be, it wouldn't be a bad idea to acquaint oneself with the basics of subjects like astrology & numerology...& therein, as the Bard would say, lies the rub. A budding financial professional understands better than most that an achievement is only as important as it is cost-effective. If learning anything cost a fortune, it would either take several years to recover the expenses or else be a total waste because the bills never get fully paid.

Fortunately, when it comes to subjects like astrology & numerology, there are literally dozens of websites that offer an excellent foundation in these fields. I (along with many others, no doubt) have gone through countless tutorials & learnt enough to know my way around the profession. But what an oddity! Professional astrologers & numerologists are still making as handsome annual revenues as they did before the arrival of free online tutorials. Why? Because designing a personalized assessment for a client be it in fashion or finance requires an assessment of the client personally & not just what the client can furnish in words & numbers. No computer can do that.

The Ultimate Marketing Strategy

It is crystal clear that robo-advisors are never truly going to replace human financial advisors, any more than slot machines could ever replace poker. Why? For the same reason that Japanese businessmen still prefer to hold important meetings on a face-to-face basis: Nothing trumps looking into the eyes of a client, competitor, ally or enemy.

But that doesn't mean the robo-advisor project is not worth pursuing. Take the example discussed earlier about astrology & numerology tutorials. Studying them wouldn't turn anyone into a professional astrologer or numerologist; but it can provide enough of an understanding of the field to know how to recognize & value the genuine professionals in said field.

The same goes for robo-advisors. From Bernie Madoff to Kamran Kayani, the world has more than its fair share of suspected & proven conmen. Teaching ordinary people how to recognize a fraudster before he or she harms their interests (instead of after), will not only contribute to overall human welfare, it will actually increase the importance & standing of competent financial experts. Therefore, most financial advisors heartily support the robo-advisor project & wish the programmers involved nothing but the best.

Pertinent Definitions

The title "Financial Advisor" is relatively uncommon in Pakistan. According to the National Database & Registration Authority (NADRA) Computerized National Identity Card (CNIC) professional classification system, it is (probably) replaced by the title of "Financial Expert". While different countries define these titles differently, given below are basic definitions that serve to provide a broad-strokes picture of what these terms mean.

Investopedia (investopedia.com) offers the following information on financial advisors:

What is a 'Financial Advisor'

A financial advisor is one who provides financial advice or guidance to customers for compensation. Financial advisors (or advisers) can provide many different services, such as investment management, income tax preparation & estate planning. They must carry the Series 65 license in order to conduct business with the public. A wide variety of licenses are available for the services that a financial advisor can provide.

BREAKING DOWN 'Financial Advisor'

'Financial advisor' is a generic term with no precise industry definition, & many different types of financial professionals fall into this general category. Stockbrokers, insurance agents, tax preparers, investment managers & financial planners are all members of this group. Estate planners & bankers may fall under this umbrella, as well.

The Investment Advisers Act of 1940, a U.S. federal law, was enacted to regulate the actions of investment advisers/advisors. Advisors are administered by the Securities & Exchange Commission.

Your Dictionary (yourdictionary.com) provides the following explanation of what it takes to be known as a financial expert:

A term defined by the Sarbanes-Oxley legislation that was passed in 2003, which requires that at least one member of the audit committees of boards of directors is a financial expert. Although the law issues guidelines for what a financial expert is, it is up to each board of directors to make a determination using five key qualities outlined in the law.

A financial expert must:

1) understand Generally Accepted Accounting Principles (GAAP) & financial statements;

2) be experienced in preparing or auditing financial statements of comparable companies;

3) have experience accounting for estimates, accruals, & reserves;

4) understand internal accounting controls;

5) understand the functions of an audit committee.

Oil Versus Renewables: Clash Of The Titans

Oil Prices: Nowhere To Go But Down?

Today is the final day of the annual World Economic Forum (WEF) at Davos. It has proven as enlightening as all the gatherings in the past. For instance, while most of the forecasts of what would be focused on consisted of references to everything from automation to discrimination, the Forum wound up discussing a far more economically significant issue: Oil.

As it turns out, oil is not just the main source of income for the rich & famous in the Middle East, but also plays an important role in the procurement of material comforts as far afield as Europe & Canada (let the record state that the Texas oil barons have reportedly demonstrated admirable self-control & haven't uttered a hostile whisper of complaint for 3 whole days since the Forum began).

The background to this topic goes something like this: 2 years ago this January, one of the most important events in modern economic history took place, triggering the steady decline of world oil prices, which have dropped from US$120 a barrel to a stunning US$20 during the ensuing 24 months. While no international media outlet has ever described what really happened, every participant at the Forum was crystal clear that it has changed the world in ways that nobody could have imagined even during the heady days of the 2008 Financial Crisis.

The conversations at the Forum led to the formation of 2 separate questions in the oil price slump debate:

1. How is the oil industry to supplement its plummeting revenues?
2. Does the oil price slump mean bad news for the renewable energy sector?

While most of the think tanks have said that they will have answers, they have also clearly stated that the world will have to wait until at least March, when the 2015 economic statistics are published & the financial plans for the rest of 2016 are formulated. In the mean time, this week's topic will focus on what the 2 aforementioned questions engendered by the oil price slump, could mean for Pakistan in 2016.

Pakistan: Perils & Prospects

The fossil fuel firms are worried because oil prices have fallen dramatically during the last couple of years & a barrel of oil just doesn't mean what it used to any more. But, contrary to general speculation, the solution is not dragging oil prices back to 2013 levels - primarily because doing so is either plain impossible or a prohibitively expensive undertaking. The real answer lies in remembering that while most of mankind now has access to affordable fuel, there are still certain countries in which oil is priced as though it was being supplied at US$100+ a barrel. A prime example of a country in which the benefits of cheap oil have been only slightly registered by the general population, is Pakistan.

Pakistan is a South Asian country with a population of approximately 200 million people, the 7th most populous country & the 36th largest country in the world in terms of area. It is a rapidly developing country & is one of the Next Eleven, the 11 nations that, along with BRICS, have a high potential to become the world's largest economies in the 21st Century.

While vehicular activity is far too expensive to be a regular indulgence for the middle-class law-abiding Pakistani citizen, different varieties of fuel are very useful in the production of electricity to power Pakistani factories & homes...&, as Shakespeare would say, therein lies the rub.

While approximately 65% of Pakistan's electricity needs are supplied via fossil fuels, renewable energy is rapidly becoming more significant to the Pakistani energy sector. About a third of Pakistani electricity is hydroelectricity since several years. In addition, solar power is becoming an increasingly viable option, be it the Quaid-e-Azam Solar Park that is expected to be inaugurated in Bahawalpur this year or the solar panels that are sold on a regular basis in the markets of Peshawar. Further, there are several wind farms planned around the country, modelled on the success of attempts like the Three Gorges First Wind Farm Pakistan (Pvt) Ltd in Jhimpir.

To summarize, the playing field in Pakistan is more-or-less level between fossil fuels & renewable energy. So, at least as far as this country is concerned, the WEF has posed only 1 real question: Who will be able to profit from the 200-million-strong Pakistani market - the oil barons or the clean tech industrialists?

Relevant Statistics

*Electricity - Total Installed Capacity: 22,797 MW
*Fossil fuel = 64.2% (Oil [35.2%] + Gas [29%])
*Hydro = 29%
*Nuclear = 5.8%
*Solar + Wind = 1%
*Average demand = 17,000 MW
*Shortfall = 5,000 MW to 6,000 MW

WAPDA Hydel (6,922.5 MW)

1. Tarbela = 3,578 MW
2. Ghazi-Barotha = 1,450 MW
3. Mangla = 1,000 MW
4. Warsak = 243 MW
5. Chashma = 184 MW
6. Duber Khwar Dam = 130 MW
7. Allai Khwar = 121 MW
8. Khan Khwar = 72 MW
9. Jagran (AK) = 30 MW
10. Jabban = 22 MW
11. Rasul = 22 MW
12. Dargai = 20 MW
13. Gomal Zam Dam = 17 MW
14. Nandipur = 14 MW
15. Shadi-Waal = 13.5 MW
16. Kurram Garhi = 4 MW
17. Chitral = 1 MW
18. Renala = 1 MW

WAPDA Thermal (4,900 MW)

1. Thermal Power Station, Guddu = 1,655 MW
2. Thermal Power Station, Muzaffargarh = 1,350 MW
3. Thermal Power Station, Jamshoro = 850 MW
4. Gas Turbine Power Station, Faisalabad = 244 MW
5. Steam Power Station, Faisalabad = 132 MW
6. Gas Turbine Power Station, Multan = 195 MW
7. Gas Turbine Power Station, Kotri = 174 MW
8. Thermal Power Station, Larkana = 150 MW
9. Gas Turbine Power Station, Shahdara = 59 MW
10. Gas Turbine Power Station, Panjgur = 39 MW
11. Thermal Power Station, Quetta = 35 MW
12. Thermal Power Station, Pasni = 17 MW

Karachi Electric Supply Company (1,756 MW)

1. Thermal Power Station, Bin Qasim = 1,260 MW
2. Thermal Power Station, Korangi = 316 MW
3. Gas Turbine Power Station, Korangi = 80 MW
4. Gas Turbine Power Station, SITE = 100 MW

Pakistan Atomic Energy Commission (802 MW)

1. CHASNUPP-1 = 325 MW
2. CHASNUPP-2 = 340 MW
3. KANUPP = 137 MW

AIIB: Lean, Clean & Green

The Dawn Of A New Era

The Asian Infrastructure Investment Bank (AIIB) was inaugurated today, January 16, 2016, in Beijing, China. If you look at the AIIB mission statement on its official website (www.aiib.org), you will notice the following statement in paragraph 1:

"Its modus operandi will be lean, clean and green: lean, with a small efficient management team and highly skilled staff; clean, an ethical organization with zero tolerance for corruption; and green, an institution built on respect for the environment."

While the fact that the AIIB has been created primarily to foster development in Asia (as opposed to the other major funding institutions that claim to represent the world in general) is indeed the main quality that sets it apart from its competitors, the afore-mentioned sentence in its mission statement is actually every inch as significant...because it holds out the possibility that, unlike institutions such as the International Monetary Fund (IMF) & the World Bank (WB), it may actually be concerned about improving the experience of doing business in Asia. Given below is a discussion of the concepts of "Lean", "Clean" & "Green" in the light of the business environment in Pakistan. I hope that it proves helpful in clarifying the relevance of the AIIB to the ordinary Asian trader as well as accelerating the process of Asian development as a whole.

Lean: Red Tape = Commercial Discrimination

During the years after the 2008 Financial Crisis, there was one specific phrase that became the justification for a lot of the financial ruin that hit the American economy: "too big to fail". The general idea was that there were certain firms or institutions that had grown so huge & ponderous that protecting the investment of the people who had made those entities such important factors was of less importance than making sure that "prestige" was maintained. The result was that millions of mid-level investors got obliterated from the commercial landscape. In the United States, "too big to fail" has become the title to the ultimate cautionary tale of what red tape can do to a perfectly prosperous economy.

Red tape is a problem in Pakistan, too. The only difference in the nature of red tape around here is that it comes in the wrapping of "security measures" that don't actually make anyone or anything statistically safer. They just make the smooth running of business less likely. Case in point: The PTCL biometric re-verification of Internet dongles. This measure is not for subscribers who activated these devices without giving their names; it is for people who even gave their Computerized National Identity Card (CNIC) numbers & then had the device activated. Those people are being ordered to march back to the PTCL outlets & repeat the verification process, this time with not just their CNICs but are also required to get themselves fingerprinted - at this rate, it's only a matter of time before mug shots will be standard practice, too!

But even if the implied insult is swallowed - Pakistanis are getting quite used to being viewed with suspicion on account of their nationality - what about the man-hours that are wasted every time someone wants to prove that biometric machines are not a horrendous waste of taxpayer money? As these circumstances make amply clear, red tape comes in many forms.

Clean: Ignorance = Corruption

Corruption is viewed as the choice between good & evil; but in reality, it is more a question of being intellectually up to the task. 99% of the time, the right thing is also the logical thing. But this simple fact is often blurred to those who aren't really qualified for certain responsibilities.

Take the Defense Housing Authority (DHA) scam that is currently making headlines in Pakistan. The local media is going blue in the face, spewing out corrections about the "misconception" making the rounds that the Chief of the Army Staff (COAS) may be in-charge of Army General Headquarters (GHQ), but it is the GHQ (& not the COAS) who is responsible for the DHA fraud. What's the distinction?

But the real question is, are soldiers - people only trained to perform tasks linked to violence - really qualified to play such an important role in the real estate sector? Or was it just wishful thinking to expect that a group trained to perceive the unexpected as an act of war, would not make outright blunders with the increasing importance it has received in a world as fluid as the commercial sector?

Green

These days, the final word in environmental protection is the Paris Agreement. While some international media figures are upset at the importance the Agreement has given to "anthropogenic emissions" as opposed to the more limited "GHGs", it is actually a demonstration of the UN's awareness that GHGs aren't the only environmental threat to be considered.

For instance, the average Pakistani simply doesn't have the money to use his car or buy stuff from the local factories to the extent that Pakistan can be classified as a serious emitter of carbon dioxide. But that doesn't mean Pakistan doesn't face pollution problems. Pakistani environmental issues are problems like particulate matter & UV radiation. But they cannot be resolved unless the nature & source of the pollution is competently & honestly identified.

This is proving very difficult for the local authorities to do (reportedly because identifying the sources of pollution in the country would require the naming & shaming of some very sensitive parties). But if an institution such as AIIB, which has been created to accelerate Asian progress & foster Asian prosperity, were to take a special interest in this issue, maybe the average Pakistani could breathe a sigh of relief - without choking on the pollution that officially doesn't exist!

Sign Of 4

Introduction

The "Big Four" accounting companies - Deloitte, EY, KPMG & PwC - must be some of the humblest multinational corporations in the world. In reality, they are the one constant in all multi-national, multi-billion-dollar deals struck anywhere on the planet. They are so important in any transaction that involves money, that EY was actually found to be discretely funding some international counter-terrorism operations a year or two ago! Talk about influential...but modest. Just one illustration of the importance of these firms is the fact that, according to the World Bank, Pakistan's GDP for 2014 was US$246.9 billion...& the combined annual revenue for the Big Four for 2014 was approximately US$122 billion, that is, almost 50% of this nation's total annual earnings!

With these figures in mind, the obvious conclusion would be that the Big Four would make excellent investment destinations. They are the ultimate inelastic good - the one party that must be a part of every juicy deal made anywhere. Therefore, the logical next step would be a quick overview of what & who the Big Four are.

Deloitte

Deloitte Touche Tohmatsu Limited opened for business in London, England 170 years ago. Today, it produces an annual revenue of US$34.2 billion & employs 210,400 people worldwide (2014 figures). It provides professional services in the fields of auditing, consultation, enterprise risk management, financial advice, legal counsel & taxation.

Deloitte has recently become a victim of a scandal involving inaccuracies in its analysis & audit of Tianhe Chemicals. Details are rather sketchy, therefore nobody is clear as to what exactly went wrong. But considering that Tianhe is a chemical manufacturer, none of the possible explanations can be good for Deloitte's pristine & respectable company image. Especially since Deloitte has faced a slew of scandals during the last couple of years, including but not limited to, using Mauritius in a tax evasion scheme, driving Guangdong Kelon Electrical Holdings into the ground & publishing an inaccurate & unreliable report on the illicit tobacco trade in Australia.

EY

Ernst & Young officially came about through a series of mergers of companies going back to 19th Century England. But EY as we know it today was created through a merger between Ernst & Whinney, & Arthur Young & Co. in 1989. It employs 212,000 globally & made an annual revenue of US$28.7 billion (2015 figures). It specializes in assurance, consultation, financial advice, legal counsel & taxation.

EY has spent the last twenty years creating a disturbing trend of finding itself embroiled in the oddest & most embarrassing of scandals, the one about the counter-terrorism operation "investment" just being one example; others are the scams pertaining to Informix Corporation (1996), Sybase (1997), Cendant (1998), One.Tel (2001), AOL (2002), HealthSouth Corporation (2003), Chiquita Brands International (2004), Equitable Life (2004), Bally Total Fitness (2008), Akai Holdings (2009), Anglo Irish Bank (2009), Sons Of Gwalia (2009), Lehman Brothers (2010), Moulin Global Eyecare (2010), Sino-Forest Corporation (2011), Olympus Corporation (2011), Standard Water (2013), Hellas Telecommunications (2015) & the Namibian forensic investigations (2015).

KPMG

KPMG got its start in 1870, when William Barclay Peat joined a London accounting firm & then took it over in 1891. Since then, KPMG has made leaps & bounds until now when it makes an annual revenue of US$26.5 billion (2015 figure) & maintains a global employee base of 162,000 (2014 figure). It supplies support in the fields of assurance, consultation, financial & actuarial advice, legal counsel & taxation.

Recently, an unsettling Internet story has rocked the financial world with the disclosure that the Canadian Government is investigating a possible tax evasion scheme in which KPMG allegedly advised wealthy Canadian clientèle to place their money in corporations on the Isle Of Man to avoid paying taxes. KPMG stakeholders are wringing their hands with worry because if the allegations prove true, the aftermath will open up the entire can of worms, including the scandals that KPMG has managed to put behind it, such as Rite Aid (2003), Oxford Health Plans Inc. (2003), Lernout & Hauspie (2004), United States Department Of Justice (2005), Fannie Mae (2006), Siemens (2007), Xerox (2008), Tremont Group (2008), HQ Bank (2010), Hewlett Packard (2011) & Olympus (2011).

PwC

PricewaterhouseCoopers started life in 1854 when William Cooper founded an accountancy practice in London, which became Cooper Brothers seven years later when his three brothers joined. Since then it has gone on to become a household name with an annual revenue of US$34 billion & a worldwide workforce of 195,400 (2014 figures). It focuses on assurance, consultation, financial & actuarial advice, legal counsel & taxation.

PwC's 2015 Media Industry Report has been met with scepticism on account of the rumors of inaccuracy that surround its 2014 Report. PwC is currently engaged in trying to explain its research methodology. It is every PwC stakeholder's sincere hope that the explanation is effective because if it isn't, there is the danger that PwC's past missteps may start to be viewed as part of a pattern, e.g. AIG (2005), Tyco International (2007), Northern Rock (2007), Yukos (2010), JP Morgan Securities (2012) & the Luxembourg Leaks (2014).

Conclusion

The lesson learnt is that be it bulls, bears or stags, there is really no such thing as a "safe investment". In addition, the idea of a "safe region" is also technically a myth, not because there is no such thing as violence, but because focusing on political boundaries is likely to be less enlightening than focusing on the state of the companies that transact business within those boundaries.

Sam Walton's Legacy

Introduction

Sam Walton grew up in a struggling middle class family, where his father switched from a loss-making farm to a more profitable job as a Metropolitan Life Insurance agent. Even then, Sam had to work his way through school & college. He went on to gain valuable business experience working at a J. C. Penney retail store, a DuPont munitions plant & then in the U.S. Army during World War II. These early life experiences taught him the importance of putting the average middle-class consumer's needs first, a rule that he made the motto of his Walmart retail chain.

Walmart flourished under his able leadership. Despite the storms that it has endured in the last few years, it made a revenue of US$485.651 billion, employs 2.2 million in 11,462 locations around the world & has at least 6 subsidiaries (figures from 2015). But a look at its stock chart indicates that everything is not all right. Some of the triggers of the current state-of-affairs could be as follows:

Hurricane Katrina (2005)

Katrina was the most expensive & one of the five most deadly hurricanes in the history of the United States. The confirmed death toll was 1,833 & the monetary loss was calculated at US$105 billion.

But the greatest tragedy was yet to come. After the hurricane moved out of New Orleans, a wave of crime swept across Louisiana. It started because people didn't have adequate food & water. They started looting stores, initially for the afore-mentioned necessities & then branched out to non-essential items. The situation rapidly escalated to car thefts, murders & rapes. This prompted the perpetrators to very enthusiastically arm themselves from the weapons sections of the local Walmart stores.

Chinese Food Scandals (2011-14)

Walmart is up to its elbows in food scandals in China since years. It was fined US$421,000 in 2011 for mislabelling regular pork as organic pork; in 2012, it was caught selling sesame oil & squid with dangerous levels of carcinogens; in 2013, it was found to be selling baked goods that had used expired eggs as an ingredient; & in 2014, its donkey meat products were found to be adulterated with fox meat.

Mobile Meth Labs (2011-15)

Since 2011, there have been at least 7 different police cases in the US where people were arrested preparing meth in a Walmart store or its parking lot, the latest reported incident being this March.

Marcel Willis (United States Air Force)

On the 26th of May, 2015, Airman Marcel Willis, age 21, entered a Walmart store in North Dakota armed with a handgun. He shot one Walmart employee dead, injured another, missed a third & then reportedly committed suicide.

The police are still unsure as to Willis' motive, but one thing is certain: Walmart stores don't seem as cosy & safe as they used to.

Conclusion

Walmart is far too big & well-run a corporation to face competition on a global scale. But, unless it does something to stop the gradual tarnishing of its good name, national-level & city-level stores are going to be making a comeback in the near future.

CME Group: Separating The Wheat From The Chaff

CME Group Overview

The Economist magazine once described CME Group as "The biggest financial exchange you have never heard of". At first glance, this may appear to be an over-the-top description, but on closer scrutiny of CME Group's financial records, you might think that it was a very conservative writing style.

According to the latest figures provided by CME Group, it made a revenue of US$2.9636 billion, operating income of US$1.637 billion & net income of US$976.8 million (2013). The company commands total assets of US$54.2778 billion & total equity of US$21.1605 billion (2013). It employs 2,300 people (December 31, 2008). Among its subsidiaries are the Kansas City Board of Trade (KCBOT), the Chicago Mercantile Exchange (CME), the Chicago Board of Trade (CBOT), the New York Mercantile Exchange (NYMEX) & the S&P Dow Jones Indices.

Even this short summary is awe-inspiring. In many ways, CME Group is the US financial sector - which begs the question: if CME Group faltered, how would the gap in the global market be filled?

The CME Crash

CME Group's stock price hasn't been doing well during the last 3 months. During this time, it has dropped over 2% at the NASDAQ. Its diverse portfolio would indicate that the fault for this decline in value does not lie with company executives, but is simply a manifestation of the state of the American economy as a whole. Indeed, the last week's figures show that CME Group is struggling valiantly to compensate for current market conditions.

Companies like P&G or Pepsi have come a long way from their roots. But no matter how many companies they acquire, P&G will always be associated with household cleaning products & Pepsi will always bring soft drinks to mind. In the same way, no matter how much diversification CME Group introduces, its core business will always be what it started out doing: trading in grain futures.

CME wheat, corn & soybean futures registered a decline last Wednesday. While corn & soybean losses stayed below about 1%, wheat stumbled mightily with a precipitous plunge of over 4% in a matter of hours! The exchange authorities scrambled to compensate for the losses (& have managed to partly repair the damage), but there has been no coherent answer to the burning question of what triggered the crash in the first place?

China's Farmland Protection Policy & The China-Pakistan Economic Corridor

While the world media makes educated guesses about the connection between the remarkably fine wheat crop in the US & the consequent drop in wheat prices, they forget to take an equally-important international factor into account: the Asian policy on agricultural land is changing. The Governor of Okinawa is engaged in a heated debate about the effect of military activity on agriculture in his Prefecture; the Chinese President has clearly underlined the importance of protecting agricultural land from the ravages of unnecessary development projects (both public & private sector). All this is because, in a few words, a thousand beautiful plazas & malls can't fill an empty stomach.

In addition, the Chinese Government has just announced that they have set aside approximately US$900 billion for investments aimed at accelerating the progress of the Belt & Road Initiative. The first project in this Initiative is the China-Pakistan Economic Corridor (CPEC). According to Pakistani Minister for Planning, Reforms & Development Ahsan Iqbal, most CPEC projects will be carried out under the aegis of the private sector - which basically indicates that, since Pakistan is basically a thriving agricultural economy, the majority of the Pakistan-China joint ventures will be in the agricultural sector.

So, if the emphasis on agriculture is set to skyrocket yet further (keeping in mind that Pakistan, China & Japan are very important trade partners to the United States), why is CME facing a rough patch? The jury is out on when the world will get a sensible answer to that question.

Other Trading Platforms?

Given below are the Top 10 replacement exchanges that have the qualifications & experience to pick up the slack while CME Group finds its bearings:

China:

1. The Zhengzhou Commodity Exchange (ZCE) established in 1990.
2. The Dalian Commodity Exchange (DCE), established in 1993.

3. The Mongolian Agricultural Commodity Exchange (MCE) established in 2013.

Japan:

4. The Osaka Dojima Commodity Exchange (ODE) established in 1952.

5. The Tokyo Commodity Exchange (TOCOM) established in 1984.

Singapore:

6. The Singapore Exchange (SGX) established in 1999.

7. The Singapore Mercantile Exchange (SMX) established in 2010.

Pakistan:

8. The Pakistan Mercantile Exchange (PMEX) established in 2005.

Italy:

9. The Trieste Commodity Exchange established in 1755.

United Kingdom:

10. The London International Financial Futures & Options Exchange (LIFFE) established in 1982.

The Karachi Stock Exchange, Lloyds Bank & The Dutch Poultry Industry

WHAT HAPPENED

Stockbrokers are some of the most practical people on Earth. They focus only & only on those events in the world that could possibly affect the ever-changing stock ticker rolling across the screens at their place of work...& the poorer the nation in which they work, the hungrier & more focused they are.

Take the Karachi Stock Exchange: it is the most commercially significant bourse in a nation that has produced some of the brightest minds in the world (especially in the fields of medicine, technology & software), while having to constantly contend with allegations of being a "failed state" or a "terrorist state". As a result, it is so efficient & practical that it didn't even allow the visit of the Prime Minister & the Finance Minister to affect business, which literally went on as usual!

That brings us to the sudden 3.44% decline in the KSE100 on Monday, March 30, 2015. It took many private sector analysts, both Pakistani & foreign, by surprise because at the moment, Pakistan is riding the crest of the Silk Route investment wave, The Export-Import Bank of China is lining up investors to construct several more nuclear power stations in the country (according to the Pakistani Finance Minister) & is one of the founding members of the highly-promising Asian Infrastructure Investment Bank. So, in a word, what happened?

THE YEMEN SITUATION

The Yemen situation was the reason cited by some local dailies. While they did not actually explain their thought process, they hinted that foreign investors were pulling their money out of Pakistan because there was a possibility that the Pakistan Government may grant Saudi Arabia's request to send Pakistani troops to aid them in their anti-terrorism operation in Yemen.

Now, everybody knows that war is bad for the majority of businesses, but it is also well known that, at one time or another, Pakistan has sent troops to practically every war zone in the world. As a matter of fact, once upon a time, a deployment in the Middle East was looked upon very positively by Pakistan Army personnel because it meant a dramatic raise in their salaries for the duration of their overseas stay. So, why would institutional investors (i.e. the decision-makers in the stock market) feel intimidated by the possibility of Pakistani troops being deployed in Yemen?

THE UNILEVER PLUNGE

While the full breakdown of which stock went up & which went down has not been disclosed in the media as yet, one piece of information did come out: Unilever registered the greatest decline at 5%. This point proved an important clue as to what caused the stumble at the KSE.

Unilever is a British-Dutch multinational consumer goods company co-headquartered in London & Rotterdam, which commands a sizeable share in the Pakistani foods, beverages, personal care products & cleaning agents markets. 

While the KSE100 had recovered all its losses by the close of trading on Tuesday, March 31, 2015, Unilever was still plummeting in London. Which means that the likely explanation for this odd event on Monday morning is likely to be the following issues:

Lloyds Bank Enhanced Capital Notes

After the 2008 Financial Crisis, Lloyds designed a bond investor program, called Enhanced Capital Notes (ECNs), to wean the company off financial assistance from the British Government. The ECNs offered an interest rate of over 10%, which proved so attractive that thousands of people bought the bonds.

However, now that the bank is financially stable once again, it states that the bonds no longer count as regulatory capital & it is entitled to redeem them. The meaning of this statement is that it will pay its approximately 10,000 bondholders the face value of the ECNs (instead of the much-higher market value) & wind up the program altogether. The legal battle progresses but any financial conflict that involves a bank as well-established as Lloyds will definitely have an effect on all British financial interests both at home & abroad. Especially considering that other British banks such as Barclays & HSBC are already in hot water for various reasons.

The Netherlands Bird Flu Outbreak

According to a report by Rabobank, the Dutch poultry industry is the international leader. So a bird flu outbreak in March 2015 that has resulted in the culling of 30,000 chickens (so far) is no laughing matter. The outbreak not only affects the entire poultry industry, which was already in decline last year, but also the revenues of the Rotterdam Port through which all poultry exports were sent abroad.

CONCLUSION

Considering that while the KSE is recovering well, Unilever is still facing problems, it is reasonable to assume that while the cause of the plunge was indeed international in nature, the media just focused on the wrong continent, & paid too much attention to an irrelevant military & foreign policy issue.